Financing into Traditional Mortgage after Seller Financing Balloon is Due

[Ben Trageser]

Hi all -

I have been looking further into creative financing and have a question. Put aside interest or any other terms.

For example, I agree to a land contract with a sale price of $1,000,000. $0 down, $5,000 payment per month and a balloon due for the rest at the 10 year mark.

At the time the balloon would be due, I would have paid $600,000 off and owe a balloon payment of $400,000.

At this ten year mark, let's say the property is now worth $1,300,000. In theory, I would owe $400,000 on a property worth $1,300,000.

In order to pay off the $400,000, I would then look to cash out re-finance the $400,000 to pay off the original owner. I would then take a 30 year fixed rate mortgage out and the remaining cash and built up equity of $900,000 would be down payment on a property worth $1,300,000.

Question: Is there a scenario where I wouldn't be able to pull out the $400,000 to pay off the original balloon payment? What other scenarios could I possibly run into besides property value decreasing that could cause issues?