| A mortgage, typically a fixed rate, which is due before the loan fully amortizes. At the end of this initial period a larger payment (the remaining principal balance) is required. This larger payment is the "balloon" payment. In general, borrowers will sell or refinance before their balloon payment is due, so they may restructure their loan to another program. Most Balloon loan programs offer a fixed rate conversion option at the end of term. To qualify for this option the borrower typically needs to still be an owner occupant, have no previous late payments, and no other liens on the property. Other conditions may apply.
Conforming and Jumbo loan amounts are available. Conforming loan limits are set by FNMA and FHLMC and vary from region to region and the number of legal units in the subject property. If the loan amount requested exceeds these limits it will fall into "Jumbo" loan criteria. The rates and terms for Jumbo loans may be more restrictive.
Property Types – Single family dwellings, eligible condos, PUD's. Properties must meet conforming loan guidelines.
Gifts – All funds can be gift funds if your LTV is 80% or less. Otherwise the borrower needs to provide at least 5% of the cash from their own funds for the transaction.
Assumable – No
Reserves – Typically, 2 months reserves are required. Some programs may waive the reserve requirements while others may require 6 months or more.
Seller Contributions – The maximum is 6% of the lower of sales price or appraised value,
Advantages:
Interest rates are lower, than fixed rates which saves thousands of dollars in interest over the fixed period.
Requires less income to qualify for a set loan amount.
Disadvantages:
When the balloon payment is due, you must refinance or extend the loan.
If you are unable to make the large balloon payment when it is due, you will default on your loan which will place your home at risk.
You build little home equity in the initial years of this loan.
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