Back in 2005, it was clear to those of us who looked closely that the housing market was sitting on unstable ground. When lenders are freely lending money to borrowers with low credit scores (in the 500s) at combined loan-to-value (LTV) ratios of 103 on a stated income with no proof of income and no money invested in the property, they are lending to people who cannot afford the houses they are buying. Suffice it to say, the housing market took a dive, then the financial markets me…
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Are you thinking of investing in real estate? However you do not have enough money to do so. Here is a tip you can use as long as the property seller is willing to negotiate with you.
To be fair, not all sellers will be interested (or even understand) the concept outlined. Your very best wager is to find a land that the owner has great interest in offering it, whether because they are moving, a divorce settlement, or frustration with tenants.
Actually, if you are currently renting and thinking of using this approach perhaps your landlord would be happy to help you out! There are some variations that could be used depending on you and your seller. Do they need the market price or are they just eager to get out from the monthly payments – perhaps facing foreclosure?
The simplest way is to consider taking over their mortgage repayments – called ‘assuming’ the mortgage. You will have to be approved by the first lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may as well try a ‘subject to’ assumption where you merely make obligations while the property stays in the seller’s name.
You take over the first mortgage and create a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time frame – 2 or 3 years. Rather than having the money stay in a bank they could be getting a high interest over 2 or 3 years with the rest due in full at the end of the investment term.
When the term ceases you need to be able to refinance the cost, or else you could sell. Unless you struck an actual bad market the value of the home should have risen by then.
Most mortgage lenders merely want to make a great investment. While your local bank could still be lacking confidence there are lots of financial lenders that would wish to make a deal. Financiers prefare property investing. The mortgage is usually around 60-70% of the value of the property, so as long as they know they get their money back in the value of the property if you default, they do not care what sort of income you make. Complete the deal with a 2nd mortgage created with the seller. In case you default they could still foreclose on the property and sell it, settling the existing mortgage with the proceeds.
Now you can observe the entire picture. It is good that seller and buyer may work together. In the event they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.