A balloon mortgage is much different that a fixed rate, 30-year mortgage. The critical difference between the two is that with a balloon mortgage, the balance of the loan has to be paid off earlier, most often in 5-7 years after the inception of the loan. So you would make regular, fixed, monthly payments just as you would with a 30-year mortgage, but you will need a large sum of money within 5-7 years for the balloon payment, which will be the entire balance of your mortgage.
You may be wondering why people would agree to this type of mortgage and the reason is that oftentimes a balloon mortgage is offered at a lower interest rate than the typical 30-year mortgage; therefore, the monthly payments would be lower. Most people refinance to pay this type of loan off prior to the due date of the balloon payment.
You would use the same steps to acquire a balloon mortgage as you would to get any other mortgage. This article will describe the steps to take to get a balloon mortgage.
The first thing to do is to do some research to find the best company with the best rates. Nowadays, it is fairly simple to do an online search. There are a lot of companies available for this type of loan. It is a good idea to check out each company thoroughly, before using them to get a balloon mortgage. There are so many scams out there today, so one has to be very careful in choosing a lender.
Maybe a friend or family member can recommend a mortgage lender. That way, there is a certainty that the lender will be fair and honest. There are several local companies, too, but that does not guarantee they are fair.
The next thing to do, once a mortgage lender has been found, is to fill out the application to get a balloon mortgage. When acquiring this type of loan, one wants to make sure that they will be able to pay it off, in full, in the required 5-7 years. One thing to realize is how your credit score is and the importance in keeping it in good standing. This way, if you need to refinance to pay the balloon mortgage off, you will be able to.
To get a balloon mortgage is quite simple to do. You fill out an application and get approved, set up the mortgage for 5, 6, or 7 years (to be paid off), and then make the payments just as you would for a regular mortgage. The payments will stay the same, as it will be a fixed rate. The rates will be set according to your credit score. A lot of companies want people to have a credit score of 650 or higher now; companies like Fannie Mae, FHA, etc. Other lenders will want you to have a much higher credit score before you can get a balloon mortgage, or any other loan.
When you are ready to apply for a balloon mortgage, have all your paperwork in order. You will need paperwork like proof of income, proof of residence and ownership of home, social security number, etc. It is a good idea to know what your credit report says, too. If you know that your credit needs some improvement, it may be a good idea to work on that first.
A balloon mortgage is relatively easy to get. It is not the number one mortgage plan in the world, because it has to be paid off in a certain time period, and the full payment is based on 30 years, not 5-7 years. For house flippers, people who buy and resell real estate, this may be a great loan.