Paying for Property Purchase: 5 Tips
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With the current recession that is rocking financial foundations across
the globe, things don’t look very bright in many areas. But if you are
interested, such an economic climate can be profitable as far as investment
in property is concerned. Of course, this kind of investment will cost
a lot of money, so unless you have plenty of cash or an excellent credit
record, you may be wondering how to raise the money for property investment.
Here are some different ways to get the money for buying new property,
or improving existing property.
The Usual Ways
At the moment, the normal methods of financing an investment includes
banks, financial and credit institutions and mortgage companies. The rates
of interest now are 6.25% for 30 years (fixed rate) or 5.75% for 15 years
(fixed rate), but the conditions required for a loan of this kind have
become more strict because of the sub prime housing problem. Usually,
institutions like these insist that a borrower have a credit score of
at least 680, a record of income and debts, and a minimum down payment
of 10%.
However, shopping around can help you find lenders whose conditions are
less stringent, and whose loan approval procedures are simpler. So if
you get approved for a loan by one of these institutions, you will be
raising money for real estate investment by a tried and tested, safe method.
Seller Carry Back
A more unusual way to creatively finance a property investment is seller
carry back. Seller carry back is a kind of owner financing, where the
vendor of the property you want to invest in is willing to carry the note
for your purchase. In such a case, the vendor is the undisputed owner
of the property in question, without encumbrance, and arranges for you
to pay a fixed amount on a monthly basis. The full amount will have to
be paid within a specified period, which generally varies between 12 and
60 months. You may need to refinance your loan after a while, but getting
refinance is simple when compared to getting a purchase loan.
Subject To
Another method of creative financing for real estate investments is called
‘subject to’, which is short for ‘subject to existing financing’. This
kind of financing refers to a condition of purchase, which insists that
the finance that is already there should remain. While the title of the
property is changed, the loan is in the vendor’s name, although it is
the buyer who has to pay every month. Subject to is only a temporary solution,
because the vendor of the property will not often agree to leave his or
her name on the loan. Vendors will only agree to subject to because they
are eager to close the sale. The buyer should fulfil his or her part of
the bargain and make the monthly payments punctually. If a buyer can refinance
within a short period, it makes sense to use this way of financing a property
purchase. People frequently use this method to finance the purchase of
pre-foreclosure properties.
Seller Second
Seller second refers to a common method of financing purchase of property
where the vendor of the said property offers a second mortgage. This amount
is generally enough for the down payment amount that has to be paid. The
advantage for you is that you get possession of the house, while the advantage
to the vendor is that he or she makes a sale and gets most of his or her
equity. However, make sure that the conditions attached to your loan allow
for seller second.
Lease Option
A lease option is a good choice when it seems that you cannot find any
way to get money for your property purchase. When you have a lease option,
you and your family can move into the house you are interested in, just
by paying a small down payment. In a few years’ time, you will have an
option to buy, which gives you plenty of time to organize the money you
need. Sometimes, lease options allow you to add the money you pay every
month, to the down payment amount so that the amount you have to pay for
the house decreases.
Other Methods
Property purchase planning can be done in many other ways. When you really
want to collect money for your property investment, you will be able to
– as they say, where there’s a will, there’s a way!
