Creative Financing, Win-Win
The Real Estate Marketplace, 2011
Federal Government edicts over the past two decades contributed to the inflated real estate market and created a shaky environment with all good intentions. Bankers were directed to cater to home buyers who may not qualify for loans by having: a steady job, a good credit score, a down payment, etc. During 2007 and 2008 the economy slowed and foreclosures spiked; house values dropped; the Feds reevaluated their lending directives.
The Whipsaw Effect
Bank real estate financing regulations changed to include finding buyers who have: steady jobs, outstanding credit scores, no debt and 20% of the purchase price, in cash. Of course, this sounds prudent in light of the previous lending rules, but the pool of potential ‘qualified’ buyers not only shrank with the new regulations; the banks became reluctant to loan any money for real estate. The Real Estate Market continued to slow as more government programs sought to protect home prices. Conventional home buying continued to stagnate in many areas of the country.
It’s Time for Creative Real Estate Financing
The old ways of selling and buying real estate still work. Sellers, who want to appeal to more buyers, should entertain: Rent to Own, Lease with an Option, Real Estate Swap, Installment Sale, Sweat Equity down payments, Real Estate Trade or a mix of all of these. Buyers should pursue these purchasing methods with sellers, because they will pay fewer upfront fees and ‘points’ by buying without a bank. Both parties will also save the extra time and the inconvenience needed to convince a banker to invest.
Win-Win Solutions for Sellers and Buyers
Take the buyer who can’t go for a bank loan because she doesn’t have enough cash for a down payment or she may stumble over any of the other bank lending hurdles. She has good credit and her current rent payments are adequate to purchase a house; this lady needs a seller who is willing to help. She could gather her down payment over the course of her tenancy. The seller would credit part of her monthly rent every month toward the purchase price of the house. Her payments also become her good payment record and, in this case, her rent payments would help pay the seller’s monthly carrying charges and taxes until the house is sold to the tenant. Both the buyer and the seller win.
Or, the seller could structure a lease with an option to buy the house at an agreed upon price at some future date. The tenant/buyer puts up some cash as an option payment to hold the price and pays rent until he gathers a down payment.
Or, the seller allows the tenant/buyer to fix up the house and credits the cost of improvements toward the purchase price.
Or, after the period of rent payments, the seller takes back a private mortgage on the full purchase price and the seller receives an income stream for 20-30 years.
Creative Financing solutions are only limited by the buyer’s or the seller’s imagination. Get the point?