Many creative homeowners who are trying to unload real estate have started to entice buyers by offering a home at a low down payment. The down payment is often below five thousand dollars for a house in the fifty to seventy-five thousand dollar range and the home usually needs work. The landlord will sell it to you on a land contract and in the State of Michigan the interest can be as high as 11%.
I was offered a Fifty thousand dollar fixer upper for $2500.00 for the down payment at 6% interest. The owner wanted 50 thousand dollars for the house pay off. The catch is, he wants it to balloon in five years which means I would have to pay off the entire home in five years.
The economy is going to take more than five years to bounce back so don’t assume you will be able to go to the bank and get a loan. Banks are very fussy and fixer-uppers they usually will not do a loan on. You would be turned down and unless you got the money elsewhere, you would lose your home.
If you have good credit, you may want to consider a ten year balloon. The economy is expected to turn around in ten years and this would give you time to fix the home up, but again you are taking a risk. It would also give you time to “flip” the house (resell) to someone else.
Balloons are good if you know you can pay it off and in this economy are risky. If you can get the landlord to “tote the note”, that would be better, but most buy fixer uppers cheap and want to unload them fast. Some are hoping you don’t make the payment and they get the home back and re-sell it to someone else for more because of the improvements you made to it.
The last reason you may want to think twice about a balloon payment is because all the land contract interest on the home will be due at that time as well. It is a huge amount of money to come up with in such a small amount of time, in an uncertain economy.
It would be safer to rent to own a home or buy a home on a land contract that does not have a balloon payment. It is a buyer’s market even if you don’t have the greatest credit or a huge down payment. Don’t be afraid to be creative and try to dicker and deal. There are so many houses for sale that you can buy a nice starter home with low down payments-especially in states that have been hit by tough economic times like Michigan.
Houses are practically being given away in urban areas like Lansing, Detroit, Flint, and Saginaw, (to use Michigan as an example). Even nice homes in small, rural towns are being sold for little down. Don’t be in such a hurry to get caught up in the balloon scheme. Look around. You will be surprised at some really nice homes that can be bought inexpensively without the risk of a balloon payment.