How do you deal with a buyer that’s balloon is due and can’t get financing?
These buyers have paid on time for two years but can’t get the property refinanced and get me out of the deal. They don’t have enough money for closing nor good enough credit especially now after the mortgage meltdown.
Should I add a percentage to the exsisting note upfront and refi them for another year or if they can’t pay that (which I doubt they can) load the extra closing on the back of the note.
I want to be cashed out but really don’t want to have a vacant house with repairs during the downturn.
Ideas?
Also…for those that hold the notes do you have an attorney to refigure and do all the paperwork again after this owner re-finance or do you just do it yourself and add an addendum to the existing note?
Why not refinance your buyer with a twenty year note, interest only for the first five years, then fully amortizing on a three year graduated rate for the next fifteen years.
For example, let’s say the principal balance due is $100K. You set the interest rate at 8.0% and make the loan interest only for the first five years. Your buyer pays you $8000 each year for the first five years. Since this is interest only, you have the full $100K principal working for you the enire five years.
At the end of five years, the interest only loan is converted to a fully amortizing loan for the 15 years left on the loan term. Bump the interest rate to 8.5% and collect $11817 in principal and interest for the next three years. When the loan adjusts, bump the interest rate another half point to 9% for the next three years, which will raise your buyer’s monthly debt service payment about $25 per month. Keep bumping the interest rate one half point each three years until the loan is paid off. Your buyer should be able to handle a $25 increase in his monthly debt service even when the interest rate goes from 10.5% to 11%
If a $300 per month increase in your buyer’s monthly payment might be too much to handle when the loan converts to fully amortizing, you could offer a 25 year amortization instead of a 15 year amortization.
If the buyer takes the full 20 years to pay off the loan, you will have collected your full $100K in principal, and another $123,330 in cumulative interest.
Dave’s always on the ball with notes. Assuming you are talking about a land contract you could always sell it after a few years (all or part) if you want out.
This can be a little difficult to write up so have an attorney draft it.
herbster