Post # 1
Fiance and I are in the process of buying our first house (YAY!) We’ve got the contract and last week we filled out the applications. The house is a forclouser, so we’re buying it from the bank that we both happen to bank at. The thing is, if we get our loan through the same bank, we have to do a balloon loan (bank rules) and we can refinance at anytime. My brother did the same thing a few years ago when he bought his house and he has had no problems and is currently refinancing. Well, Fiance was talking with his aunt who works with Vermont housing and she got mad at him for considering a balloon loan. She was saying that we’re going to screw ourselves and we HAVE to get a fixed loan.
Our big problem is our jobs. Fiance has a part time and full time job and I work part time. Fiance just started his full time job in late May and he’s been at his part time job for 1.5 years. I’ve spoken with other lenders and to apply with them you have to be at a part time job for 2 years and most require 6 months to a year for full time jobs. The bank said the amount of time Fiance has been at his jobs are fine.
So finally to my question…are balloon loans really that bad? Does anybody have one?
Post # 3
In law school when I learned about mortgage types we called balloon loans “bullet loans.” Because when that final payment came in you wanted a to put a bullet in your brain…. true story. :/
I’d go with fixed.
Post # 4
Are balloon loans required on foreclosures? i know you said it was the banks rules but I would think they would still be getting your money on interest with a fixed loan and you’re willing to buy the house that they are currently losing money on they would be able to bend a little.
Post # 5
@Future_Mrs.H: From what I understand, yes, the balloon loan is required.
@CorgiTales: We would refinance before that last big payment..Before Fiance talked with his aunt we were discussing refinancing sometime next year to get the fixed loan.
Post # 6
Refinancing isn’t cheap, and with a balloon payment, you have no idea what interest rates will be when you have to refinance. As I’m sure you know, interest rates are at an all-time low so they will almost assuredly be higher when you refinance. If at all possible, see if you can find a lender who will let you do a fixed so you can benefit from the current low rates.
Post # 7
Balloon loans are extremely risky and are a big reason why so many people were forced into foreclosure over the last couple of years. You always think you can refi before that balloon payment comes due but all it takes is for one of you to lose your job or have a credit score drop, and you’re suddenly unable to refi. Not to mention the refi costs, and if the market continues to slide you may have stellar credit but negative equity in the home meaning no bank will write a refi for you. It is extremely risky and should only be done if you can actually afford to make that balloon payment when it comes due.
Don’t take this the wrong way but if you can’t qualify for less risky financing due to your employment histories, it may be better in the long run to pass up this house and spend a little more time renting, until you qualify for a more conventional loan.
By The Way my sister had a balloon loan and she was denied a refinance because her loan was more than her house was worth. In the end she had to borrow a significant amount of money from my mom to pay down the mortgage to the point where she was eligible for a refi. She is a state government employee for 10+ years, very good credit, earning about $65k/year, and financially responsible. She just didn’t really understand what she was getting herself into when she signed that loan.
Post # 8
- Wedding: October 2011 - Bed & Breakfast
I thoroughly agree with Fishbone. It’s not that forecloisure purchases require baloon loans, it’s that the bank has deemed you too risky for a conventional fixed rate loan and will only give you a riskier balloon loan. If all you can quality for is the baloon loan, you should not be purchasing a home. Period. It’s like asking for financial ruin.
Post # 9
I wouldn’t get a balloon loan. I’m no expert, but it seems like if you are required to pay a large sum at the end you will be upside down on your house for a long time. You could only refinance to a fixed loan if a bank approved that, which they don’t seem to be right now, and there are no guarantees when they will.
Post # 10
@lovekiss: +10! Exactly what she said!
I know that you probably have your heart set on buying a house, but if all you can qualify for is a risky balloon loan, I think you need to take an emotional step back from the situation and look at this logically. Perhaps it would be better to work on repairing/strengthening your credit while also saving up more money. I think this, even though it is not what you want to hear, is the best decision for you in the long run. Many, many people have recently lost their homes because they were too impatient to try and do things the responsible way.
Post # 11
@lovekiss: Agreed 100%.
OP – If all you can qualify for is a balloon loan, don’t get a house right now. But it also sounds like you have only looked at financing through your current bank. If you really think you are at a point where you can afford to become homeowners, shop around and see if you can qualify for a fixed laon from somewhere else.
Post # 12
We’re looking at buying a house too and we’re not considering anything except fixed rate. It’s so not worth the risk. You could really ruin your future if the balloon mortgage goes wrong.
Post # 13
Shop around to some other banks. Anything other than a fixed rate loan in the current market is crazy.