Purchasing property is not like buying groceries or a magazine. This is a huge decision that can impact your real estate career – not to mention your bank account and credit – in debilitating ways if you’re not careful.
First, (and I know this will sound like we’re pestering you by now!) you’ll need to evaluate your interests and motives, then formulate a plan that you can start working towards. In the meantime, you should be saving enough money for a down payment on a piece(s) of property that you want. Then, you need to consider what kind of leasing options and loans you’ll need. There are several types to choose from, many of which vary according to the goals and interests you’ve established. Take a look at some of them below:
• Assumable Loan/Assumption of Mortgage – These are loans that can be transferred from the seller to the buyer. The buyer receives the title of a property and agrees to take, or “assume,” responsibility for paying the mortgage and for all deficiencies if a foreclosure sale were to occur.
• Subject to Mortgage - This is similar to an assumable loan, but the buyer does not assume liability on the mortgage. When a mortgage is taken “subject to,” the buyer can abandon the mortgage and not lose anything except for the home’s equity.
• Wraparounds – As the name suggests, a wraparound mortgage “wraps around” an existing mortgage. Basically, it allows you to refinance an existing loan at an interest rate between the original loan rate and the current market rate. Payments are sent to either the second lender or the previous homeowner, and are then sent to the first lender after the additional amounts have been removed. The interest rates achieved here are lower than those typically received in a second mortgage.
• Lease Options – This is a finance option that allows people to lease a home with the opportunity to buy it. Not only will each month’s rent include the normal rental fees, but also an extra sum that can be applied to the purchase of the property. The price of the property is already preset, and quite often tenants are required to buy the home within a specific timeframe.
• Contract for Deed/Land Contract – Also referred to as conditional sales contract or installment contract. This is when the title or deed of the property is not handed over to the buyer until all or part of the payments has been made.
• Seller Mortgage/Seller Financing – A seller mortgage is when the owner of a property lends money to the buyer to cover part or all of the sales price. You can usually negotiate a better interest rate or avoid administrative fees from various lending agencies. Also, if you can’t qualify for a loan, these are especially attractive. But even better than that: you’ll avoid mortgage insurance.
• Cash-Out Financing – You can draw on your house’s equity to acquire money for another piece of property.
• Owner Occupancy
• FHA Loans – The Federal Housing Administration (FHA) is a federal agency that ensures first mortgages granted by FHA-approved lenders. As a result, lenders can loan a high percentage of the sale price and demand low down payments.
• VA Loans – The Veterans Administration (VA) is an agency of the federal government. These loans are eligible to veterans who have served more than 120 days of active duty in the armed forces. Also, there’s no down payment.
• FHW 203 (k) (improve run down property)
TIP: Verify the value of a piece of property through an appraisal or by getting another professional opinion. Don’t agree to overpay. Instead of saying, “You name the price,” say “I’ll name the terms,” or “Let’s discuss the terms.”
Read more...Money to Put Down
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