future dr.t (IM) asked:
What interest rate would be expected for a home selling for 79,500 with 10,000 down? The contract would be for 25 years with payments of 700/month. The other possibility is that the contract would be written for 5 years with payments of 700/month with a balloon due at the end of the contract. I believe this makes the interest around 11% and this seemed rather high.
If you chose to do the balloon payment, how much would you have to come up with at the end of the five years?
Beth
What interest rate would be expected for a home selling for 79,500 with 10,000 down? The contract would be for 25 years with payments of 700/month. The other possibility is that the contract would be written for 5 years with payments of 700/month with a balloon due at the end of the contract. I believe this makes the interest around 11% and this seemed rather high.
If you chose to do the balloon payment, how much would you have to come up with at the end of the five years?
Beth
Sharon
11% is high, but that’s not out of the ordinary for a land contract. Usually a seller offers financing (land contract) because the buyers can’t qualify for a conventional mortgage. Hence, they have some disqualifying factors and are high risk. So the seller is hedging his risk by charging a higher interest. Happens all the time.
If you have decent credit, income, and assets, you could qualify for a conventional morgtgage at 7% or less.
At the end of five years, you wouldn’t have paid much towards principal, so you’d need to refinance about $79k or so…
Good luck.
Floyd
Digger is correct, land contracts usually start at 10% interest. I ahev seen many as high as 12%. Again, as digger said, if you have decent credit, employment history of 2 years and soem assets (500 or more) you could qualify for a more attravive interest rate.
Hope this helps, and good luck
Joyce
Looks like the two people above answered the first question pretty well.
The balloon payment will be the remaining amount due on the mortgage. It looks like you will have about $68,000 to pay on the balloon payment. I am not a mortgage broker, so this is an estimate. The balloon payment is normally paid by refinancing on a loan. This is why it is essential that you make your monthly payments EARLY for the durationof the land contract – to improve your credit. If you can’t pay the balloon, then you are in default of the contract, and you can lose the land.