Looking for great deals in real estate? Sure you are, everyone in the housing market is. And as everyone knows, the housing market is in a slump. So, unless you have an impeccable credit rating and a mass of financial resources at your disposal, getting into real estate investment for the first time can be more than challenging, it can be down right impossible.
In this article we’re taking a look at 5 ways to finance a real estate investment.
1. Traditional Financing
When you hear about people using traditional means to handle the financing, they mean organizations like banks, credit unions, and other financial strongholds. The subprime housing crisis has forced lenders to deny a great many applications for financing and the future of the subprime housing market still looks grim. Without a 680 credit score or higher, you can expect your application to be denied. There are also more stringent terms and conditions in place as far as documentation goes. Now you have to provide legitimate proof of income as well as any debts.
If you are fortunate enough to be approved, you can expect a 10% down payment requirement on any property you are looking to purchase. You may be able to fair even better and find a lower rate. Either way, now is a great time to purchase homes, providing you are financially stable enough.
2. Seller Carry Back Financing
Here is a method of financing that you may not have heard of before. Creative financing, or “on term” financing is one of the alternative and less well known methods of attaining investment purchase financing. In this method of action, the seller agrees to carry the note for the buyer. The seller will always have to own the property 100%, with no debt attached. The seller has no interest in the property any longer, but they would still like to pull a profit from it. The average time frame for payback to the seller, from the buyer, is around 1-5 years. The buyer will have to refinance at some point down the road, but that’s a good thing. Attaining a refinancing loan is much easier than a full on purchase loan.
3. Lease Option Financing
This is a great option for people without a lot of financial backing. This is usually a last resort for people without a lot of financial resources. After a few years, usually only two or three, you are given the option to purchase the property. Every month, a portion of your payment can go towards the actual purchase of the home. You’ll have to arrange this but it can be done.
4. Subject-To Financing
In order to understand the simplicity of this financing option, just remember this. “Subject-To” financing refers to the fact that this financing is subject to the current terms and conditions set forth in the original agreement. The property title gets transferred to the buyer, the loan stays in the name of the seller, and the buyer then picks up responsibility for the payments.
This is one of the fastest methods to finance your investment quickly, but it’s not a long term solution. Sellers will never allow a loan to be tagged to their name for very long, and rightly so. The smart investors will use this method to avoid a down payment. In six months they simply put the loan in their name.
Often called pre-foreclosure strategies, there is zero down and buyers are eager to sell the property. Making payments on time is always the responsibility of the buyer.
5. Seller Second Financing
This term refers to the fact that the seller offers the buyer a second mortgage. The second mortgage amount is usually enough to make a desired down payment. As an example, let’s say the buyer qualifies for a loan that requires a 20% down payment. The buyer should have the seller also carry a note for 20%. This will allow the home buyer to get into the home without the need for any of his own money. Using this method, the seller gets the majority of his equity and completes the transaction. Some loan terms and conditions won’t allow for a second mortgage so make sure you get clearance.
Planning Your Property Purchase
You are not limited to these creative means of financing, there are lots more. Remember the old saying: “If there’s a will there’s a way!” Many people have tried alternative options to traditional financing and made all of their investment property dreams come true.
Are you interested in real estate investment? If so, contact our team today for more information and free investing advice.