One of the disappointing side-affects of the boom market, where loan products were created so that everybody could buy a home, was the loss of the skilled buyers' agent. Back in the day, we had to know all kinds of creative financing options so that "marginal" buyers could still make it to the closing table.
The days of needing skill and experience to help more buyers are back, but I have experienced a void in the number of great real estate agents who know how to execute all of the different types of financing options and contract negotiation points that will get buyers with limited or damaged credit to own a home. Today, I want to dust off a few of my favorite ways to help somebody buy a home.
The Best Way To Buy A Home
Obviously, the best way to buy a home in Tallahassee is to pay cash. When you have a large bag of money in your hands, you are able to negotiate a deal that has limited contingencies and will allow the seller to move rapidly. You will most likely get your best deal when paying cash.
But over 90% of people who want to buy a home in America do not have the cash on hand to purchase a home without having to borrow money. It is for these people that must have a full bag of tricks in order to optimize their ability to buy a home.
The Best Way To Borrow Money
The best way for a home buyer to borrow money is to deal with a trusted mortgage lender and to get the best prevailing rate and loan package that the market has to offer. With all the craziness going on in the economy, with the government socializing banking and printing money, we are seeing purchase loan rates in the low 5% range and refinance money at 4%.
Unfortunately, there is a healthy segment of people who want to buy a home but do not qualify under the stringent lending guidelines that these mortgage lenders must follow. For these special buyers, there is typically no solution and they are forced to rent a home until they repair or improve upon their credit. It is for these people that we must understand non-traditional lending options and creative financing.
Creative Financing Offers Challenged Home Buyers Potential Solutions
So, if you find that you cannot pay cash and you cannot borrow money from a traditional mortgage lender, then you are a candidate for some creative financing options. Here are a few of my favorites that have allowed many people to buy a home when their previous REALTOR® or mortgage lender said it could not be done.
Lease-Purchase A Home
With real estate inventory levels high, sellers are having to consider options that they would not have preferred just a few years ago. One of these options allows a buyer to contract to buy a home, and move in the house prior to closing. A lease agreement provides for the terms of the occupancy prior to closing, and the closing could occur within whatever contractually specified period of time the buyer and seller have agreed upon.
Some of the buyer-benefits of the lease-purchase agreement in real estate include:
- Demonstrating an ability to make payments on time (improving credit)
- Allowing for part of the monthly lease payment to be credited towards a down payment
- Locking into a purchase price at today's values
- Moving into the home before the ability to buy it has been met
Purchase Money Mortgage
The term purchase money mortgage is used to describe seller financing. When the seller provides some or all of the money necessary for the buyer to purchase the home, the loan that is created from the seller to the buyer is called a purchase money mortgage.
Seller financing is one of the least understood and yet best ways to get marginal buyers into homes. Most sellers, when fully briefed and educated on the process, will happily provide some level of purchase money mortgage if it means the successful sale of their home.
The terms of a purchase money mortgage are totally negotiable and this is where working with a great real estate professional is worth a fortune to both a challenged home buyer as well anyone trying to sell a home in today's market.
Additional Or Alternative Collateral
Here is a technique that not many REALTORS® recommend, but solely because they do not even know that it exists. This works for buyers who have assets that have equity in them, such as a stock portfolio or maybe cars, boats, etc. By working with a commercial bank, a loan can be secured against the asset and the real estate to raise the down payment or the entire purchase price for home.
I wrote about one of the more exciting uses of this process last year in an article about creative financing using a stock portfolio. If you want to know about the latest creative ways to leverage your stock portfolio (but not have to sell it) in order to buy a home, you can read all about it by going to the link at A loan program with the security investors demand in today's economy.
There Are So Many More Creative Home Buying Solutions
There are just too many ways to get somebody a home if they are highly motivated to buy a home. I learned one of my favorite ways of buying a home by watching how Wall Street packaged some of its bond deals. This process is something that I refer to as a zero coupon bond second mortgage, and you can read about it in the blog I wrote last April by following the link.
What about trades? Often times, you can find ways of trading something with value for all or part of the home value that you want to buy. Some sellers are asking themselves "what is my home worth now?" and they know they need a creative buyer to help them. Trades are too often overlooked and usually occur between builders and developers, but they represent a viable solution for many homebuyers and homesellers in today's market.
The moral of the story is that if you really want to be a homeowner, you can be! There is so much inventory and you only have to convince 1 home seller that you are a worthy buyer. So, if you are this serious homebuyer, make sure you have a great REALTOR® and go and get yourself a new home!
Joe Manausa, MBA is a 27 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.