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Alternative financing for home purchase

Alternative Financing for Home Purchase

Alternative financing has helped many consumers in their dream to of buying a home. It has certainly raised their chances of obtaining down payment or even borrowing money at a lesser cost. Sometimes, they can even purchase a property without having to shell out instant cash.

You will probably wonder why people would opt for this financing. Well, primarily, lenders are tightening their qualifications for mortgage applications. Because of this, not many people will be qualified to obtain mortgage. If you belong into their demographics of unqualified borrowers, you will never get a chance to purchase a home anytime soon. You will probably have to wait until the economy picks up or if the mortgage industry is in a good condition. Unfortunately, that wouldn’t be any time soon. So how will you be able to afford home buying? Alternative financing is the perfect solution. 

How do you get into alternative financing? Alternative financing comes in different forms. If you want to learn more about the options, read the following sections.

Seller Financing 

This is one of the tactics sellers use to speed-up the sale of their property. In here, the seller can take out a second mortgage to finance a portion of the buyers purchase price. For example, buyer purchases a $200,000 property but he or she is only qualified for 120,000. The lender will shoulder the remaining $80,000. The terms and agreements may vary and it is not limited to that which is illustrated. In fact, buyers can even work out a deal, which is more favorable to them. You might be asking why a seller would opt for this solution. Well, it is one way for them to sell the house at the price they want. Buyers can take advantage of this deal. 

Lease or Rent Options 

Have you ever heard about rent to own or lease to own? Well, they are one option for alternative financing. This is the perfect opportunity for renters to buy some time to raise the down payment needed for purchasing the property. This option makes it easy. Do you know why? It is because of the existence of rent premium and lease options. Rent premium is just like your typical rental payment, only it is more expensive. Depending on your agreement with the seller, a portion of that rent will be credited to your down payment. For example, your rent premium is 800 dollars. If your agreement with the lender indicates 40% will be credited, then 320 dollars will be included in your down payment. Lease option, on the other hand, is amount you pay for committing to purchase the property. This is like an equivalent of an earnest money. If you paid for this but then failed to proceed with the purchase, the owner will pocket all fees paid. Nevertheless, it is a great way to lessen your burden of obtaining the down payment. 

Loan Assumption 

This option is not too common these days. However, you can try to fish more information to your lender. In loan assumption, banks would almost always do not have to put you through underwriting. The amount of upfront fees is usually lessened, especially if the seller agrees to be paid back for less than his or her equity. The amount you will be opting for the financing is smaller since assumed loan of the seller will deducted from the purchase price. In the end, the buyer benefits by getting savings and getting a chance of paying off the loan in a shorter time. 

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