Sell a Land Note With a Balloon Payment in Texas — Your Options

Balloon payments are one of the most common features of seller-financed land notes in Texas, and if your note includes a balloon, you are far from alone. The balloon structure — where the borrower makes regular monthly payments for a set period and then owes a large lump sum at the end of the term — has been a staple of Texas land financing for decades. It keeps monthly payments affordable for the borrower while giving the seller a defined endpoint for full repayment. But when you decide to sell a land note with a balloon payment in Texas, the balloon introduces a specific set of pricing considerations that every note seller should understand before requesting a quote.

The core issue with balloon payments from a note buyer's perspective is refinancing risk. When the balloon comes due, the borrower must either pay the lump sum out of savings, refinance the remaining balance through a bank or other lender, or sell the property to pay off the debt. If the borrower cannot do any of these things, the note goes into default, and the note holder is left to pursue collection or foreclosure. This uncertainty about the borrower's ability to satisfy the balloon is the primary factor that drives pricing differences between balloon notes and fully amortizing notes, and understanding how buyers assess this risk will help you set realistic expectations and maximize your sale price.

This guide covers everything you need to know about selling a land note with a balloon payment in Texas. You will learn how buyers evaluate balloon risk, how the timing of the balloon affects pricing, what you can do to make your balloon note more attractive to buyers, and how the sale process works for this specific note structure. Whether your balloon is due next year or ten years from now, the information here will help you navigate the selling process with confidence.

Understanding Balloon Payments and Why They Exist in Texas Land Notes

How Balloon Structures Typically Work

A balloon payment note combines a series of regular monthly payments with a large final payment that is due at a specified date. The monthly payments are typically calculated using a longer amortization schedule — often fifteen, twenty, or thirty years — but the note matures much sooner, usually in three to ten years. When the maturity date arrives, the remaining balance is due in full as the balloon payment. This structure creates affordable monthly payments during the note's term while ensuring that the seller eventually receives the full payoff within a reasonable timeframe.

For example, a $60,000 note at eight percent interest with a twenty-year amortization but a five-year term would have monthly payments of approximately $502. After five years of payments, the remaining balance would be approximately $54,800, and that entire amount would be due as the balloon payment. The borrower's monthly payment is manageable because it is based on the twenty-year amortization, but the balloon creates a deadline by which the borrower must come up with the remaining $54,800. This structure has been enormously popular in Texas seller financing because it balances affordability for the buyer with a reasonable payoff timeline for the seller.

Why Sellers Use Balloon Structures

Sellers include balloon payments in their notes for several practical reasons. First, the balloon limits the seller's exposure to long-term risk — rather than carrying a note for twenty or thirty years, the seller knows that the full balance will be due within a defined period. Second, the balloon encourages the borrower to refinance into conventional financing, which is often the original intent of the seller-financed arrangement. Third, the balloon provides the seller with the option of either receiving a large lump sum when the balloon comes due or negotiating an extension if both parties agree. This flexibility has made balloon structures the default choice for many Texas land sellers who offer owner financing.

From the borrower's perspective, the balloon structure is attractive because the monthly payments are lower than they would be on a shorter fully-amortizing note, and the borrower has the expectation of refinancing or selling the property before the balloon comes due. In many cases, borrowers who purchased land on seller financing fully intend to build on the property and refinance through a traditional mortgage before the balloon date arrives. When this plan works as intended, the balloon is a non-event — the borrower refinances, the note is paid off, and everyone is happy. The problems arise when the borrower cannot refinance or sell by the balloon date, which is the risk that note buyers must evaluate.

How Balloon Payments Affect Note Pricing

The Refinancing Risk Factor

The central pricing consideration for a balloon note is the probability that the borrower will be able to satisfy the balloon when it comes due. If the buyer is confident that the borrower can and will pay the balloon — either through refinancing, sale of the property, or cash reserves — the balloon is a positive feature because it shortens the buyer's investment horizon and returns their capital sooner. If the buyer is uncertain about the borrower's ability to pay the balloon, the feature becomes a risk that must be priced through a larger discount.

Note buyers assess refinancing risk by looking at several factors: the borrower's creditworthiness and financial stability, the current LTV ratio and whether the borrower has enough equity to qualify for conventional financing, the type and location of the property and whether traditional lenders would finance it, prevailing interest rate conditions and lending standards, and the amount of time remaining before the balloon comes due. Each of these factors contributes to the buyer's overall assessment of balloon risk, and the more favorable they are, the less impact the balloon has on pricing.

How Time Until the Balloon Affects Your Price

The amount of time remaining before the balloon payment is due has a significant impact on pricing. A balloon that is not due for seven or eight years is a distant concern — the buyer has plenty of time to collect payments, the borrower has ample opportunity to prepare for the balloon, and many things can change in the interim. A balloon that is due in twelve to eighteen months is an imminent concern that dominates the buyer's risk analysis because the borrower must act quickly and there is limited room for market changes or borrower improvement.

As a general guideline, notes with balloons due in more than five years are priced with only a modest balloon risk premium compared to fully amortizing notes. Notes with balloons due in two to five years see a moderate premium. Notes with balloons due in less than two years face the steepest premium because the buyer must immediately confront the question of whether the borrower will be able to satisfy the balloon. If you have the flexibility to sell your note well before the balloon comes due, you will generally receive better pricing than if you wait until the balloon is imminent. For a broader look at how various note features affect pricing, this resource on discounts when selling a land note in Texas provides additional context.

The Sweet Spot — When Balloon Notes Command Good Pricing

Balloon notes can actually command good pricing when the circumstances are favorable. The ideal balloon note from a buyer's perspective has several years of remaining payments before the balloon, a strong payment history demonstrating borrower reliability, a low LTV that would make refinancing straightforward, collateral in a market where traditional lenders are active, and a borrower who appears financially stable and capable of satisfying the balloon. When these conditions are met, the balloon is viewed almost as an advantage rather than a risk because it means the buyer will receive their full investment back within a defined period rather than waiting for a note to fully amortize over many years.

In fact, some note buyers actually prefer balloon notes over fully amortizing notes for this very reason. The shorter investment horizon reduces the buyer's exposure to long-term risks like market downturns, rising interest rates, and borrower financial deterioration. If your balloon note checks the boxes described above, you may find that buyers are enthusiastic about it and that the pricing is competitive with or even better than what a comparable fully amortizing note would receive.

Options for Selling Your Balloon Note

Option One — Sell the Entire Note Including the Balloon

The most straightforward option is to sell the entire note to a buyer, including the right to collect the balloon payment when it comes due. The buyer pays you a lump sum today that reflects the present value of the remaining monthly payments plus the present value of the balloon payment, discounted at the buyer's required yield and adjusted for the assessed balloon risk. This is the most common approach and the one that produces the largest immediate cash payout.

When selling the entire note, the buyer assumes all responsibility for managing the balloon — including working with the borrower to refinance, extending the balloon date if appropriate, or pursuing remedies if the borrower cannot pay. Your involvement ends at closing, and whatever happens with the balloon is the buyer's concern. This clean break is one of the primary attractions of selling the full note, particularly for sellers who are concerned about the borrower's ability to satisfy the balloon and would rather not deal with that uncertainty themselves.

Option Two — Sell a Partial Interest Excluding the Balloon

If you want to sell some payments for immediate cash but retain the right to the balloon payment, a partial note sale can be structured to accomplish this. In a partial sale, you sell a specified number of the monthly payments to the buyer while keeping the balloon payment for yourself. The buyer collects the purchased monthly payments, and when their portion is complete, you resume receiving payments and eventually collect the balloon when it comes due.

This option can be attractive if you believe the borrower will successfully pay the balloon and you want to capture that value yourself. The buyer's risk in a partial sale that excludes the balloon is lower because they are not exposed to the refinancing risk, which typically results in a smaller discount on the purchased payments. However, you retain the balloon risk, which means you are still exposed to the uncertainty of whether the borrower will pay the lump sum when the time comes. For a detailed comparison of full and partial sale structures, read about full versus partial land note sales in Texas.

Option Three — Modify the Note Before Selling

If your balloon note is generating unfavorable pricing from buyers because of balloon risk, you may have the option of modifying the note to improve its marketability before selling. The most common modification is to extend the balloon date — pushing the due date further into the future to give the borrower more time and to reduce the buyer's perception of imminent refinancing risk. Another option is to convert the balloon note to a fully amortizing note by extending the term to match the original amortization schedule, eliminating the balloon entirely.

Both of these modifications require the borrower's agreement, since you are changing the terms of their obligation. Most borrowers are happy to agree to a balloon extension or a conversion to full amortization because it reduces their own risk and eliminates the pressure of a looming lump-sum payment. However, any modification should be documented in a formal loan modification agreement that is signed by both parties and, in the case of a deed of trust modification, recorded in the county records. This documentation is essential for the note buyer to have confidence in the modified terms.

Preparing Your Balloon Note for Sale

Gather Your Documentation

The standard documentation requirements for selling any land note apply to balloon notes as well — the original promissory note, the deed of trust or contract for deed, the payment history, and any title insurance policy. For balloon notes specifically, the buyer will pay close attention to the language in the note that defines the balloon terms: the maturity date, the amount of the balloon, and any provisions regarding extensions, modifications, or late charges that apply to the balloon payment. Make sure you can point the buyer to the specific section of the note that addresses the balloon so there is no ambiguity about the terms.

If you have had any communications with the borrower about the balloon — whether the borrower has expressed plans to refinance, has requested an extension, or has indicated any concerns about their ability to pay — document those communications and share them with the buyer. This information helps the buyer assess the likelihood of a successful balloon resolution, which directly affects pricing. For a comprehensive document checklist, review this guide on documents needed to sell a land note in Texas.

Know Your Borrower's Position

The more you can tell the buyer about the borrower's ability to handle the balloon, the better the buyer can evaluate the risk. If you know that the borrower has been building on the property and plans to refinance through a mortgage lender, share that information. If you know the borrower's credit has improved since the note was originated, mention it. If the borrower has expressed any plans to sell the property before the balloon comes due, that is relevant too.

You do not need to have detailed financial information about the borrower — many note holders do not — but any insight you can provide about the borrower's intentions and circumstances regarding the balloon helps the buyer form a more accurate risk assessment. A buyer who feels informed about the balloon situation is more likely to offer competitive pricing than a buyer who is working in the dark.

Consider the Timing of Your Sale

As discussed earlier, the timing of your sale relative to the balloon date matters significantly. If the balloon is years away, you have time to let the note season further and to sell from a position of strength. If the balloon is approaching within the next year or two, you face a decision: sell now while the note is still performing and the balloon has not yet become an active problem, or wait to see whether the borrower pays the balloon on their own.

Selling before the balloon creates certainty — you receive your cash and transfer the balloon risk to the buyer. Waiting introduces the possibility that the borrower pays the balloon in full, which would be ideal, but also the possibility that the borrower cannot pay, which would leave you managing a default situation. For many note holders, the certainty of selling before the balloon arrives is preferable to the uncertainty of waiting, particularly when the note has been performing well and is eligible for competitive pricing now.

What Happens If the Balloon Has Already Passed

Past-Due Balloon Payments and Their Impact on Pricing

If the balloon date has come and gone and the borrower did not pay, you are holding a note that is technically in default — even if the borrower is still making regular monthly payments. This situation is more common than many people realize, and it does not prevent you from selling the note. However, the past-due balloon creates a specific set of complications that buyers will evaluate carefully.

A buyer looking at a note with a past-due balloon will consider whether the borrower has continued making monthly payments despite the overdue balloon, which is a positive sign that the borrower intends to keep the property. They will assess whether you have taken any formal action regarding the default, such as sending a notice of default or initiating foreclosure. And they will evaluate the collateral value relative to the total amount owed, including any accrued interest or late charges on the balloon, to determine their potential recovery in a worst-case scenario.

Notes with past-due balloons where the borrower is still making monthly payments are often viewed by buyers as workout opportunities. The buyer may plan to negotiate a balloon extension, restructure the terms, or simply continue collecting payments under the existing arrangement while the technical default remains unresolved. The pricing will reflect the added complexity and risk of the situation, but these notes absolutely have value and are purchased by experienced buyers regularly.

Your Options When the Balloon Is Past Due

If you are holding a note with a past-due balloon, you have several options. You can sell the note as-is to a buyer who specializes in Texas land notes and let them manage the situation going forward. You can negotiate directly with the borrower to extend the balloon date, modifying the note to create a new, future balloon that eliminates the current technical default. You can pursue your legal remedies by sending a notice of default and potentially initiating foreclosure. Or you can simply continue collecting monthly payments and accept the status quo, though this option leaves the default unresolved and the balloon hanging.

Selling the note is often the most practical choice because it converts an uncertain situation into guaranteed cash and transfers the management responsibility to a buyer who has the resources and expertise to resolve it. Longhorn Note Buyers has experience purchasing notes with past-due balloons and other complications, and can evaluate your specific situation to provide a fair, realistic offer.

Ready to Sell Your Note?

Whether your balloon is years away, months away, or already past due, Longhorn Note Buyers has the experience and capital to evaluate your note and make you a competitive offer. With over $46 million in Texas notes purchased since 2007 and a 100% close rate on quoted deals, Longhorn understands the nuances of balloon note pricing and will provide a transparent offer based on a thorough analysis of your specific situation. Longhorn's team has seen every type of balloon scenario and can structure a deal that meets your needs, whether you want to sell the entire note or just a portion of the payment stream.

Call Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to request your free, no-obligation quote. Find out exactly what your balloon note is worth, and let Longhorn's team explain how the balloon affects your pricing and what options are available to you. With an A+ Better Business Bureau rating and decades of combined experience, Longhorn Note Buyers is the trusted partner you need for selling a balloon note in Texas.

Frequently Asked Questions About Selling Balloon Notes in Texas

Does a balloon payment make my note harder to sell?

A balloon payment does not make your note harder to sell — balloon notes are one of the most common types of notes in the Texas market, and experienced buyers purchase them regularly. However, the balloon does introduce refinancing risk that the buyer must evaluate and price, which means the discount may be somewhat larger than for an equivalent fully amortizing note. The extent of the impact depends on factors like how soon the balloon is due, the borrower's ability to refinance, and the strength of the collateral. A balloon note with favorable characteristics can still command very competitive pricing.

Will I get a better price if I extend the balloon before selling?

In many cases, yes. Extending the balloon date pushes the refinancing risk further into the future, which reduces the buyer's perceived risk and can result in a smaller discount. The improvement in pricing depends on how close the original balloon date was and how far it is extended. If the balloon was due in six months and you extend it by five years, the pricing improvement can be significant. If the balloon was already five years away and you extend it by another two years, the incremental improvement may be modest. Discuss this option with your buyer to see whether a balloon extension would materially improve your offer before you invest the effort.

What if my borrower has already indicated they cannot pay the balloon?

If your borrower has told you they will not be able to pay the balloon when it comes due, you are in a situation that many note holders face, and selling the note may be your best option for avoiding the cost and hassle of managing the default yourself. Be transparent with the buyer about the borrower's communication — this information is critical to the buyer's risk assessment and will result in more accurate pricing. A buyer who knows the balloon is unlikely to be paid will price the note based on the collateral value and the ongoing monthly payments rather than the balloon, and the offer will reflect that adjusted analysis.

Can I sell a balloon note if the balloon date has already passed?

Yes, you can sell a note with a past-due balloon. While the technical default creates additional complexity, experienced note buyers are accustomed to these situations and will evaluate the note based on the borrower's ongoing payment behavior, the collateral value, and the realistic options for resolving the past-due balloon. If the borrower is still making monthly payments and the collateral is sound, the note has meaningful value even with the past-due balloon. The buyer will likely plan to work with the borrower to restructure the terms or will factor in the cost of pursuing remedies as part of their pricing analysis.

Is it better to sell before or after the balloon comes due?

In general, selling before the balloon comes due is the better strategy because the note is still performing, the borrower has not yet been tested by the balloon obligation, and the buyer can underwrite the note based on the expectation that the balloon will be handled successfully. Once the balloon comes due and the borrower fails to pay, the note's risk profile changes dramatically, and the pricing will reflect that change. If you are considering selling and the balloon is approaching, it is usually better to act sooner rather than later to capture the higher pricing that a pre-balloon performing note commands.