Real Land Mortgage Questions

[Bode]

So I'm looking into purchasing some acreage up in New Mexico. I found a company that is willing to work a raw land mortgage. Their standard mortgage for this is "5 year Balloon Note (fixed rate for 5 years, balloon payment due upon maturity) at 5.75% (approx. APR 6.434%) amortized for 15 or 20 years."

I'm not very educated in this department. Can some explain this to me?

Also "Maximum Loan to Value 70%, 30% down payment required". Does this mean if I get appraised for more than my purchase price I can take the difference from the down payment or is it still 30% regardless? For example land value is $100,000 and I purchase for $90,000. Will I still need $30,000 down payment?

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[bfargin]

If the bank is happy with the appraisal and feels confident lending to you, then you should be able to borrow the 70% of appraised value = 70,000 and then only have to come up with 20,000 for the downpayment. But, they might base it off of the actual sale price (market value) rather than the appraised valuation, so I'd double check with them. I've seen it done both ways.

[Termy]

As far as the first part of your question (the terms on the note) it works like this:  payments will be on an a normal 15-20 year amortization but when year five ends, you have to settle that loan either by paying it off or finding alternate financing means.  (Usually people have built by this time and roll the land note into their construction loan into a traditional mortgage upon completion.)

 It is also worth asking whoever is selling you the land if they are willing to carry.

[Bode]

Thanks for the feedback. 200k in 5 years is a little much. Found a CU that will do 12-15 at a lower interest rate.

I won't be building for about 7 or 8 years unless something in my career goes ugly.

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