This mortgage option can be ideal for buyers whose income is going to increase substantially each year. Little or no down payment is required and there are marginally better interest rates than the conventional 30-year mortgages. One drawback to a FHA or VA loan is that there is a lower limit on the amount of money that can be borrowed and the VA requires current or past military service. This option offers buyers a lower monthly payment with full tax benefits but there is little or no equity buildup. Monthly payments are often comprised of interest only.
Buyers often find that a balloon payment can only be met by refinancing or selling the house.
This mortgage option can work well for buyers who plan on moving in a short amount of time or are confident of the short-term property appreciation. Ultimately the buyer is indebted to two parties and conventional financing may be easier to qualify for. In this method an arrangement is made in which a third party investor provides a percentage of the down payment. The third party also retains the same percentage of ownership and appreciation of the home. The occupant or buyer can buy out the third party at a later date, allowing them home-ownership with less cash down.