Dallas, Texas – As mortgage rates rise and credit requirements on traditional mortgages from conventional lenders remain stringent, creative financing is becoming increasingly common in the real estate space. One of the most common forms of creative financing, seller-financing or owner-financing, is also one of the most attractive options because it reduces the responsibilities of property ownership for the seller while creating a cash-flowing mortgage note. That note is an independent asse…
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Are you contemplating investing in real estate? However, you do not have enough money to accomplish this. Here is a tip you may use as long as the person selling the property is willing to negotiate with you.
To be fair, not every seller will be interested (or even understand) the concept outlined. Your better wager is to locate a property that the owner has great desire for selling, whether because of moving, divorce, or they are frustrated with tenants.
Actually, if you are currently renting and considering using this technique perhaps the owner would be glad to help you out! There are some variations that could be used depending upon you and your seller. Do they desire the market price or are they just eager to get out from the monthly payments – maybe facing foreclosure?
The simplest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will have to be approved by the initial lender to assume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make repayments while the property remains in the seller’s name.
You take over the first mortgage and make a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – 2 or 3 years. Instead of having the money sit in a bank they could be getting a high interest over 2 or 3 years with the remainder due in full at the end of the investment term.
When the term ends you ought to be able to refinance the cost, or else you can sell. Unless you strike a real bad market the value of the house should have risen in that time.
A lot of mortgage lenders merely want to make a great investment. While your local bank may still shy away there are a lot of financial lenders that would want to make a deal. Financiers prefare real estate. The mortgage is usually around 60-70% of the value of the land, so as long as they understand they get their money back in the value of the estate if you default, they do not care what sort of income you make. Complete the deal with a second mortgage created with the seller. If you default they can eventually foreclose on the property and sell it, paying down the existing mortgage in the proceeds.
Now you can observe the entire picture. It is better that seller and buyer can work together. In the event that they can’t wait for a sale, you may still give them their asking price with a little versatility on their part.