Trying to obtain a mortgage for buying a home today can be incredibly challenging even for those with good credit and it could become even more difficult before it gets easier. This has many home buyers turning to seller financing which can bring many benefits but also comes with its fair share of dangers too. What do you need to know?
The Advantages of Seller Financing for Buying a Home
Besides being the only option for many, there are many benefits of buying a home with seller financing now, rather than waiting.
Homeownership comes with many intrinsic benefits that are often overlooked ranging from kids performing better at school to eliminating further moving costs. However, some of the most powerful advantage of owner financing whether seller held mortgages, rent-to-own or lease options are being able to lock in a great price on the home you want today and attractive rates. Plus, of course being able to start building equity right away rather than paying far more for the same home later.
Unfortunately, many buyers, especially first time home buyers are not aware of the risks.
The Dangers of Buying a Home with Owner Financing
Insurance can be a tricky issue until you actually own the property, so make sure the property and your belonging is covered.
The biggest risk for those buying a home in this manner is the financial situation of the current owner. If they owe more on the home than it is worth, they can’t really enter into a contract with you for less. You’ll also want to make sure that any current mortgages on the property get paid off or are at least up to date or you could lose your money and roof if it is foreclosed on. You need to check for other liens on the property and should make sure any appropriate documents are recorded in local public records to protect you.
Finally, those entering into rent-to-own agreements or lease options need to make sure their credit is on track to be able to qualify for a conventional loan when time runs out. You can’t just sit back and hope it gets better, it requires a proactive approach. You’ll also need to know what other special lender requirements there are for obtaining a loan in a situation like this, for example being able to provide a solid paper trail for all payments and showing they were made on time.
No one ever grows up wanting to be a tenant.
BHC 0512 BVsigns 01 on Flickr.
Via Flickr:
Photo Earl Neikirk/Bristol Herald Courier
Bristol Virginia city council is working on the rules for signs around the City. The signage along Commonwealth Ave. is shown here.
The Best of Freakonomics by Stephen J. Dubner and Steven D. Levitt - How to make it, why we steal it , how to bet with it, and how it motivates us. A selection of the best articles from NYT column that became an international sensation.
To Have is To Owe by David Graeber - A lot of people have little understanding of what money really is - if you want to find out, this classic article is the place to start.
Three great articles about the financial crisis by Michael Lewis - The world’s top financial reporter heads to Greece, Iceland and Ireland to find out how the credit crisis changed the world.
Jonathan Lebed’s Extracurricular Activities by Michael Lewis - Another classic Lewis piece about how a 15-year-old became the first ever minor to face prosecution for stock market fraud.
The Great American Bubble Machine by Matt Taibbi - “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
The $20 Theory of the Universe by Tom Chiarella - A beginner’s guide to bribery. Find out just how far greasing people’s palms with a $20 bill can get you.
Why the Poor Pay More by DeNeen L. Brown - “The poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace. A primer on the economics of poverty.”
Inconspicuous Consumption by Virgina Postrel - What do the things you spend your money on say about you?
Is Free the Future by Malcolm Gladwell - The author asks whether the internet will make paying money for stuff a thing of the past.
Improving Your Credit to Qualify for a Mortgage Loan
An incredible number of Americans have suffered damaged to their credit scores in the last few years while lending standards for home loans have become increasingly tougher. This doesn’t mean that you should give up on buying a new home by any means. Begin rebuilding your credit now and you could see your credit scores rebound and be able to buy a new home and get a mortgage sooner than you think.
There may be nothing you can do about recent bruises to your credit but what you do from here on out can make all the difference in your financial future and that of your loved ones. Love it or hate it, your credit is likely the most valuable asset you have.
Good credit isn’t just about the negative items you have. Often it is a matter of not having enough good credit to outweigh the bad. Negative credit will eventually fall off your report but rebuilding your credit is likely going to require establishing new lines of credit.
The good news is that banks have recently reported relaxing credit standards for consumer loans and credit cards. Those who have been hit the worst may find applying for secured credit cards and loans or in-store financing the easiest route. Just make sure that you manage it wisely and don’t get further in the hole.
To establish enough new credit to qualify for a mortgage loan you will need at least 3-5 accounts. The length of time they are open and high credit limit are important too. Just don’t apply for too much credit or you’ll lower your credit score further.
If you are still coming up short know that some select mortgage programs will accept alternative credit. This means carefully documenting your rental payments and utility bills, not just with receipts but a paper trail showing how you paid them.
Johnson City & Kingsport both on NAHB’s 100 Improving Housing Markets
Johnson City ranks 82 & Kingsport 83 on May report put out by the National Asscoation of Home Builders listing Improving Housing markets in the nation.
Are You Really Ready to Buy a Foreclosure?
Foreclosure properties still offer huge discounts for home buyers looking for new residences, vacation homes and investment properties but are you really prepared for the potential work involved?
Recent figures from RealtyTrac show the top 10 states for foreclosure discounts compared to regular selling prices ranging from 47% in Louisiana to 36% in Georgia but these bargains often come with a price. Even $10,000 foreclosure homes can turn out to be teardown and new construction projects running up tabs well over $100,000.
It’s all about how much discount on the front end is worth the potential work lurking after closing.
Do you know how many tens of thousands of dollars it will cost to teardown a foreclosure if you find too many problems after you buy? How much more will it cost to rebuild?
Even if your work is limited to rehabbing properties or what appears on the surface to be a little clean up and cosmetic makeover how much can you handle yourself, do you have enough cash reserves to account for overages and carry the overhead?
This all means cash money out of pocket unless you are using an FHA 203 (k) rehab loan, Fannie Mae HomePath financing or qualify for another type of rehab mortgage loan.
Make sure conduct thorough inspections and get multiple quotes from contractors. If you plan to resell after fixing up your foreclosure you need to know the ‘subject-to’ value or ARV, as well as which improvements will yield the best ROI and increase the actual appraised value.
If buying a home as a residence or rental property is it wiser to just buy a home which has recently been remodeled and be able to finance the improvements and enjoy the peace of mind of a brand new property look, feel and smell?
What determines real estate market recovery
by Allan Weiss
The National Association of Realtors’ chief economist was recently quoted as saying that the recovery is happening though not at a breakout pace.
My problem with this statement is that it is very hard to accurately generalize about this market. The dynamics are a complicated mixture of pervasive economic forces and locally specific forces. For example, interest rates tend to very similar across all US markets. This is also true of mortgage underwriting policies government tax breaks and the general mood of the economy. To some degree, it is also true of the strategies of the large banks regarding what to do with their distressed properties. If a national bank has a policy to aggressively market and sell foreclosed properties, this can affect many markets across the US.
However, bank policy about foreclosed properties is also where individual market dynamics begin to come into play. The concentration of distressed properties varies quite a bit by local market and depends on where people were most economically hit during the worst of the recession, where people tended to refinance and take out equity and where there was a high level of purchasing at or near the peak. You can see how these rates have varied with this heat map.
Ultimately, price is determined by our old friend supply and demand. The variables that go into supply and demand these days include how many foreclosed properties are on the market, how many other properties are on the market and how many qualified buyers are actually bidding on properties. However, supply and demand does not complete the picture as well as it has in the past. This is due to so called “shadow inventory”, meaning the number of properties that are or will be in the banks’ hands that have not yet hit the market. If the banks flooded the market with these properties, prices would sink like a stone. This is why its not nearly the whole story to talk about a “recovery”. There cannot be a deep recovery until these properties once again are owner occupied. This could be a long way off.
