Rent to Own/ Lease With Option to Buy

Rent-To-Own Or Lease-Option Allows Buyers To Achieve Their Dream Of Being A Home Owner

In a chaotic real estate market, a rent-to-own or lease-option may be a great opportunity for a potential homebuyer. It is not exactly a for sale agreement. It is actually a lease, in which the seller rents a house to the buyer. The buyer pays a monthly rent as well as other expenses. The catch is that the terms of the lease are locked in for the future home purchase.

During the agreed upon length of the lease, the potential homebuyer pays a monthly rent to the seller. The seller acts like a landlord. This option can be beneficial to both the buyer and the seller. The buyer pays the lease amount to the seller. The seller receives the and usually applies rent credits towards the buyers down payment then sells the house to the buyer. The buyer gets the house without having to pay a hefty down payment.

Even though it seems like a great opportunity, a rent-to-own or lease option can have some drawbacks to consider.

Buyers could lose their whole investment if they fall behind on the monthly payments. Depending on how much the payments are and how long the buyer actually made the required payments, that can easily add up to a lot of money.

If this happens, the buyer should talk with the seller to see if they could re-negotiate the lease contract. If the talk does not lead to a new lease contract, the buyer does have the choice to continue with the original lease or decide to stop making payments. If the buyer stops payments, he or she will lose the whole investment and may take a hit on their credit report if they originally gave up their social security number and birth date. Which I strongly advise not to give up because of possible scams and identity theft.

The buyer may also want to consider a credit course to educate themselves as well as improve their credit to secure financing at the completion of the lease contract. The buyer needs to make all payments on time and ask the seller if he or she could sign a basic statement saying that you made all payments on time. You would then send that letter with your information to all three main credit bureaus. Equifax, Transunion and Experian

You should not be discouraged about entering a rent-to-own or lease-option. With the real estate market seemingly turning the corner, it is the perfect time to buy your first or second home using this option.

Wrap Around Financing

Wrap-Around Financing Means A Home Buyer Does Not Need A Down Payment to Buy A House

Wrap-around financing is another option for potential homebuyers with little or no money down required. It is a loan transaction in which the seller takes out a second mortgage on the property and the buyer assumes this mortgage. The buyer then obtains a new mortgage for the difference between the original purchase price and the existing mortgage.

Like most financing options, wrap-around financing has some drawback both the homebuyer and seller needs to consider. Not all loans can be used in this financing. Only assumable loans can be wrapped. These assumable loans are such in which the existing seller can transfer his or her obligations to the buyer. These are typically FHA and VA loans. It is extremely important for the seller to check out if he or she is able to do this type of financing.

Wrapping can be used to get around the limitations of the old loan. However, this can be a rather risky option that should not be done, because it actually violates the seller’s contract with the original lender. The seller can get into trouble if he or she does this to circumvent any restrictions.

When the seller actually wants to sell the house, the wrap-around financing option can still cause problems. There is a possibility that using this option can actually worsen the seller’s credit if the buyer does not make the monthly payments.

These payments do not go directly to the seller. It goes to a third party. The seller does not necessarily know if or when the buyer misses or falls behind in the payments until it is too late. The seller still assumes the responsibility for the loan. If this happens, the seller’s credit score can worsen quickly.

Even with these concerns involving wrap-around financing, this type of financing can be a great opportunity. It is extremely critical if you do not want any of these problems to occur, you need to do business with someone you know and trust. A mortgage is a lot of money and a credit score is nothing to mess with either.

Wrap-around financing does have some benefits. Through this, sellers can actually sell their home and buyers are able to buy the home without paying a down payment. The real estate market has been on the rise lately, so buyers need to act now. It is the perfect time to buy a first or second home.

Diamonds in the Rough Foreclosures

Foreclosures Can Be Your Diamond In The Rough If You Are In The Market For A Home

In the recent years, there has been a lot of talk about foreclosures in the news. If you are interested in buying your first or second home, foreclosures are a perfect opportunity because the prices are below retail price. You can easily find a foreclosed home in your neighborhood. You can talk with a real estate agent or go online.

Foreclosure is a legal process in which a bank or lender sells or repossesses a mortgage property if the borrow fails to repay the loan within the agreed time.  This property is generally sold at a lower price, so it will be sold faster. There are some startling statistics according to CNN Money. Nearly 1.3 million homes were foreclosed on in 2006 and some real estate experts are even predicting more foreclosures.

Nevertheless, sometimes foreclosures can bring some problems to a potential home buyer.  Foreclosure homes are typically found in neighborhoods with a number of other foreclosures. Many home buyers may see these kinds of neighborhoods less desirable than other neighborhoods that contain a smaller number of foreclosures. A home buyer has to take this into consideration when he or she is looking for a foreclosure home to buy.

Another problem is the fact the home’s value generally goes down on a foreclosure home. You may save money with little or no money down and the overall home price is considerably lower, but the value typically decreases. The home’s value is compared to many different facts and one is the data from previous sales. Later in the future, you may want to sell the property and these new buyers will base their offers on the lower price you actually paid.

One last problem is the most obvious one.  These homes are generally not properly maintained.  Bankers or lenders do not generally worried about what the property looks like. They just want to sell it, so they can make their money. Fixing and repairing problems within the home can get rather expensive. If you are interested in buying a foreclosure home, you should have a complete inspection done before you make an offer.  Sometimes, you think you have a bargain of a deal, but with the repairs you may not save the money you were expecting.

If you are interested in foreclosures as an option to buy a first or second home, you should take some precautions. However, the housing market is actually picking up lately. The time is right to buy your dream home.

Gift Offering of Equity

Family Members Can Offer A Gift of Equity for New Homebuyers

Another alternative to paying a down payment is for the buyer to purchase a home with a gift of equity. Even though times are tough financially for everyone, buying a home is not out of the question. Families generally rally around each other when it comes to financial hardships. Owning a home is a major step in a family’s life. Sometimes parents, aunts, uncles, grandparents or other family members can offer money as a gift.

A gift of equity is basically when a family member gives the buyer money to put toward the down payment. Using this gift of equity as well as a portion of their existing savings, buyers can achieve that American dream.

Buyers need to remember the fact that the money given as a gift is not a loan. In order to use this alternative option, the family member needs to write and sign a gift of equity letter, which must clearly state that the buyer does not have to repay the money.

Without this letter, the lender will assume this money is a loan and add it to the debts included in the buyer’s debt-to-income ration on the loan application. It is important that the buyer and the particular family member, who is offering the gift of equity, should talk with a tax professional, so everything can get settled and any possible tax issues resolved. This process can be rather specific, so the buyer and the family member need to be well informed about gift of equity letters.

After performing these early steps, the homebuyer has a deliberate set of steps to achieve in buying a family member’s home with a gift of equity. First, the buyer must negotiate with the seller about the size of the gift of equity. It is critical to get this in writing before any home purchase gets started.

When there is a loan being placed on the home, the buyer needs to ask the lender for a sample gift letter and then he or she fills it out. The letter must have all the specific details, like the relationship of the person giving the gift, the amount and the person or persons receiving the gifts.

A note to remember, any gift of equity that is higher than the limit of annual gift tax exemptions should be reported to the IRS. The buyer needs to contact the IRS for more information.

Finally, a gift of equity can be a great alternative to a down payment if you have a family member willing to give the money to you. If you are able to do this, you should act on it as quickly as you can, because the housing market is improving these days.

Rehab Loan Financing

Rehab Loans Can Substitute the Down Payment with Physical Labor for Potential Home Buyers

Sometimes, the home you want to buy is not in good shape and that could potentially help you with buying a home with no money down. This down payment alternative is called a rehab loan that is issued by the Federal Housing Administration (FHA).

First thing, a potential buyer needs to do is to look for a property that needs some work done. When one is found, the buyer needs to contact and speak with a local lender and ask about in-house financing. It is important to bring a rehab plan, which is a proposal to rehabilitate the home.

The buyer should provide proof that if the lender finances the property for one year he or she can finish the necessary repairs. The renovations and repairs will ultimately raise the value of the property. Also, the lender needs proof that with these renovations the buyer still has enough equity to refinance the in-house loan to a secondary mortgage.

Using a rehab loan option, the buyer will receive complete financing with a potentially higher interest rate. That is a bit of a drawback, but the cost of completing the physical labor may still be less than what would be required for a down payment.

FHA Rehab Loans are designed to target the distressed first-time homebuyers or those in the lower-income brackets. These loans are secured with properties in need of rehabilitation and repairs.  It may seem simple, but qualifying for one of these loans can be rather difficult due to the tight restrictions.

When buyers are interested in this option, they need to confirm that they have an eligible property.  Properties that contact either one to four units and have been completely repaired for at least a year are the only properties used with rehab loans.  One must realize that these loans are not just construction loans. They are used to rehabilitate or repair the existing home and not construct a new one.

There are some restrictions on the reasons for a rehab loan. Some examples include meeting energy efficient standards and making improvements to major appliances like air condition units or heaters.

Along with the tight restrictions, the limitations are just as tight. Rehab loans can not be greater than either the existing mortgage on the home, the cost of the rehab and closing costs or the prior appraised home value added to the cost of the rehab.

It is important to know everything about rehab loans before pursuing the home rehab. A trusted lender can help a buyer in the rehab loan process. The housing market seems to be moving in the right direction for a homebuyer to purchase a first or second home. 

Sweat Equity Financing

Sweat Equity Is Perfect For New Homeowners With Little Or No Money Down

When you are unable to pay the down payment in your first or second home, you have some options and one is sweat equity. It can be defined an interest or increased value in a property earned from labor toward upkeep or restoration. Sweat equity can be used for a down payment or to purchase later.

This money alternative can be a great idea for those people who are handy with tools and can easily do yard work and paint. There are some bad points surrounding sweat equity. First off, it is rarely used anymore due to the increase in the housing market. However, you can always talk with the seller and see if this is a possibility. There is always a chance.

Let’s not get ahead of ourselves. You will need to find a fixer-upper home that is to your liking. You may like a particular residential area. However, if you are not from that area, you do not know what are the good and not-so-good areas to live in. This can be a bit of an inconvenience, but you still have some options, such as checking out the area or asking a reliable realtor.

Also with sweat equity, it may also cost you more than you were expecting if you hire a contractor to do the work for you. Before hiring anyone, you need to do some research on the contractor, so you can make sure that each one is reliable and does the work efficiently. With the help of the Internet, homeowners have an easier time in the research part.

Nevertheless, sweat equity can be a blessing in disguise. If you want to buy your first home, you can definitely make that dream into a reality with only a little sweat. It can also be more rewarding when you do the work yourself. You are the homeowner as well as the contractor. This saves you the time and cost of hiring a contractor.

Most fixer-upper homes require someone who has a certain level of home construction and improvement knowledge. It can lead to little or no money down on your first or second home and only may require some labor as little as fixing up the yard or giving that wall a new coat of paint.

Finally, the real estate market has been recently heading in the right direction. With sweat equity, you can finally accomplish your dream in buying your first or second home.

Seller Carry Back Financing

Buyers Should Take Advantage of A Seller Carry-Back Financing Offered By A Homeowner Willing To Sell

Seller carry-back is an option for some sellers to use in the right circumstances in order to sell their house. In basic terms, this type of financing is when a seller acts like a bank or lender and carries a loan on his or her property. Then the buyer takes over the mortgage and pays it down each month.  The loan can either be a mortgage, trust or deed. Most seller carry-back financing are only secured with a promissory note.

The process may seem simple. Before a seller and buyer agrees on this type of financing, the seller should contact his or her mortgage lender or banker. Some lenders do not allow the seller carry-back. The seller needs to know if it is even possible.

After a seller determines it is actually possible. They should remember that not all seller carry-back financings turn out good.  The most obvious disadvantage to this type of financing is that the seller has to wait a longer period of time to receive payment in full for his or her house. That is a problem, but it can be lessened if there is a balloon payment used to shorten the time period.

The seller does not need to take some steps to make things go smoothly in this type of financing. He or she should track the monthly payments of the new loan to make sure the buyer is making payments and what is the correct interest and outstanding balance.

Another drawback to seller carry-back financing is the fact that the seller may have to act like a collector if the buyer does not make a payment. Also in case of a foreclosure occurs on the property, the seller is typically the last person to be paid. 

These drawbacks should not stop a seller and buyer to basically merge together in a seller carry-back financing.  It can lead to the seller selling a house and the buyer purchasing his or her dream home. Some other positive things include the fact these properties sell faster this way, a seller may get more money than the original purchase price, the closing is faster and the cost is low.

Seller carry-back financing is a great way for everyone included in a home purchase. There is no better time than the present when it comes to buying a first or second home. The real estate market seems to be heading in the right direction. Your dream house awaits.