Starting from square 1

[maat55]

Depending on your credit today, I would refi as quickly as possible with a good down payment. If you are not able to refi now, you should at least reset your morgage with the owner to include a good down payment.

This will allow you to make the same payment and pay down more principle while having and building more equity for your later refi. It is very important that you maintain a good EF and pay your bills on time.

[atomicrc11]

The balloon payment really scares me. Basically the loan you took out has payments for 4 years with amortization like a 30 year loan. So for 4 years, you're paying an amount you would have paid if you were making payments on a 30 year mortgage at 9.9%. Then after making payments of 787.52 per month for 4 years, you owe the entire amount that is left.

If you make the minimum payment of $787.52 per month for the 4 years you will owe $88103.55 on the house. Making $36k, it doesn't look like you'll be able to make that balloon payment and you will default on the house. Unfortunately you made a bad deal. You'll need to get out of it before that 4th year comes or in all likelihood you will lose the house.

Even if you put $25,000 towards the mortgate right now, and you paid $787.52 per month for 4 years, you'll need just over $51,000 to make the balloon payment at the end of the term. All I can say is you need to get out now!!!!

[QueenOphelia]

Can't he get a loan from a bank for the balloon payment? If he pays on time his credit should be well established in 4 years.

Once he pays off the balloon note won't he "just" have the 90k loan to pay?

[atomicrc11]

Another issue is the loan is through the owner of the property. If he doesn't report the payments to at least one of the credit bureaus it wouldn't even show up on his credit report.

Also, did you make sure the owner of the home doesn't any any liens or loans still out on the house? It could be very bad if someone takes the house from the owner and you get kicked of the house you don't yet own.

I would suggest getting new loan ASAP through a qualified lender so you don't have to worry about ever making these balloon payments.