HOW TO EXIT A SELLER FINANCING DEAL

[Devonte Thomas]

I am currently confused on how I would exit a seller financing deal that has a 5 year balloon in the P&S agreement. For example let's say the terms state that the purchase price is $380,000, DP is $19,000, Amortization is 30yrs, interest is 4% and seller wants a 5yr balloon. At the end of the 5yrs I would have paid off a total of $72,200 (not including property tax and insurance) leaving me with a net balance owed on the property of $288,800. If I were to use a cash-out refinance of up to 80% on the property and the property value didn't change so the loan would be $304,000 would the loan be paid to the seller? What happens to the left over amount of money? Would I have to put 20% down since the loan only covers 80% of the assessed value of the home?

[Derek Dombeck]

In a refinance, assuming the new lender will go up to 80% LTV, you will keep any additional money that's left after the balloon payment and closing costs are paid. You likely will not need to bring any cash to the table unless property values go down and the new appraisal doesn't support the loan amount that you are seeking at that time.

I would double check an ammoritization schedule because your balloon payment seems wrong to me. Based on the terms you mentioned, I calculated a balloon payment of approximately $326,500 at 5 years.