Help us understand these loan options (we are newbies to financing) (interest rate, credit score)

[thehoustonian]

Hello,

I hope everyone is doing well. My fiancée is considering a land loan for a plot of land located in a residential development in the greater Houston area, TX.

She has a steady income as a medical professional, all tax records and pay stubs, no debt and a very good credit score.

However, we understand that getting a loan on a plot of land is very different to getting a loan on a built house, and typically the payback period is shorter and interest rate much higher.

She is able to put down ~60% of the sale price and needs to borrow about 40% which is $100,000.

Furthermore, she would like to pay back the loan within 12-18 months, definitely within the loan period.

A regional bank with branches in Houston has offered the following loan options:


24 month interest only - Purchase only. 80% financing.
24 months I/O

6.25 %

I think I understand that the 2 year i.e 24 month loan basically requires interest payments for 23 months and then a large balloon payment, which would be around the loan amount in month 24.

If that is not right, please advice on how to best understand the mechanics of that loan.

I am confused about how this other loan option would work:

180 month amort/36 mo balloon - Purchase only. Up to 90% financing.
180/36 months

6.00 %

Let's assume we are planning to borrow 100,000.

Are these worth considering giving that land loans are much less competitive, or do we need to look elsewhere?

I asked the banker for additional details on the loan, and he did not provide any apart from saying that the 2 year loan is a straight P&I loan and the 3 year loan is a balloon note which will be amortized for 36 months.

There is no mention of any prepayment penalties, etc.

What other questions do we need to be asking?

Any advice is very welcome and we will be grateful.

Thank you,
thehoustonian

[Modification Specialist]

Originally Posted by thehoustonian

Hello,

A regional bank with branches in Houston has offered the following loan options:

• 24 month interest only - Purchase only. 80% financing.

• 180 month amort/36 mo balloon - Purchase only. Up to 90% financing.

thehoustonian

What your looking to do

• able to put down 60%+ of the sale price

• need to borrow about 40% which is $100,000.

The loans you are mentioning are designer loans. Strongly suggest looking at larger "A" lenders like Wells Fargo, Flag-star, Nationstar....to get a loan like a 15yr or 10 yr fixed rate loan with no prepay penalties. Putting more than 50% LTV should be able to easily qualify for a good loan.

Your made a point of paying it off quickly. My advice is stretching out the payments for a longer period, making more than the required payment. This will build your credit, plus reduce the actual interest you are being charged for the loan. Another benefit is it will allow you to put more towards savings.

Good Luck