The Advantages of Seller Financing for Buying a Home

Besides being the only option for many, there are many benefits of buying a home with seller financing now, rather than waiting.

Homeownership comes with many intrinsic benefits that are often overlooked ranging from kids performing better at school to eliminating further moving costs. However, some of the most powerful advantage of owner financing whether seller held mortgages, rent-to-own or lease options are being able to lock in a great price on the home you want today and attractive rates. Plus, of course being able to start building equity right away rather than paying far more for the same home later.

Unfortunately, many buyers, especially first time home buyers are not aware of the risks.

The Dangers of Buying a Home with Owner Financing

Insurance can be a tricky issue until you actually own the property, so make sure the property and your belonging is covered.

The biggest risk for those buying a home in this manner is the financial situation of the current owner. If they owe more on the home than it is worth, they can’t really enter into a contract with you for less. You’ll also want to make sure that any current mortgages on the property get paid off or are at least up to date or you could lose your money and roof if it is foreclosed on. You need to check for other liens on the property and should make sure any appropriate documents are recorded in local public records to protect you.

Finally, those entering into rent-to-own agreements or lease options need to make sure their credit is on track to be able to qualify for a conventional loan when time runs out. You can’t just sit back and hope it gets better, it requires a proactive approach. You’ll also need to know what other special lender requirements there are for obtaining a loan in a situation like this, for example being able to provide a solid paper trail for all payments and showing they were made on time.

Most think mortgage lending has already tightened up way too much. Few programs are left and those which are still out there seem to be getting more expensive, requiring more money down and are seeing credit requirements go up. However, some are calling for even tougher qualifications!

In the wake of recent data showing a spike in FHA foreclosures and almost 50% of those receiving loan modifications back in default within a year some bankers claim “credit standards are way too loose”. Tighter lending could threaten to not only throw the real estate market back into the hole and cause even more defaults but could be a knife in the back, crippling the entire economy.

As hard as it may seem, the smart thing to do may be to stop promising bail outs and refinances that don’t really help and stop encouraging borrowers to default, while loosening lending standards to sensible, common sense based guidelines. Of course this isn’t likely to happen until after November at the earliest.

The bottom line is that real estate professionals, investors and consumer protection groups ought to be focused on education. The upcoming election may be the only power some have in making their voice heard about which way things should go but assuming the worst the key to fueling the rebound and keeping things headed in the right direction is educating consumers on how to improve their credit and hit those high scores of 740 and above.

To maintain this level of credit requires conscious strategy and a proactive approach. Knowing when to apply for credit and when not to. Knowing how many credit lines to keep open and of course committing to keeping balances below 30% of their limits. Those hoping to get mortgages also need to be made aware of the traps that no payment or no interest deals and student loans can present when it comes to qualifying. Otherwise the disparity between classes is only likely to get worse, with a growing percentage of the population being doomed to be renters.

Don’t let TV advertising and slick marketing campaigns draw you into bad debt, take your credit seriously. Besides owning a home or investment property your credit is you most important asset.

While real estate agents may often be some of the most hated professionals on the planet they certainly aren’t all bad. We here at CT Homes work with real estate agents all the time as they often bring us business and buyers for our homes. However, there are a few things first time home buyers need to know about working with agents

First off, it can be wise not to lock yourself in. Some Realtors have very complex buyers agreements, read them carefully.  Generally you can have more than one agent looking out for you and you can switch agents if necessary but you could still owe them fees if you buy a home they showed you.

It is much better to interview real estate agents carefully upfront. What to look for?

• Local market knowledge
• Time in business
• Happy to explain everything in detail (10 x if you need it)
• Won’t rush you. Will take time to find a good match for your personal needs
• You share synergy and it’s a good personality match too
• They are hungry and will work hard for you

If the seller has a real estate agent representing them it is wise for you to be protected too. The listing agent isn’t your friend. Despite ‘transactional broker’ arrangements their goal is to sell that property and get best terms for seller. This can cause conflicts of interest around deposits and offers.

Lastly (and this will infuriate many real estate agents) know that while the seller pays the commission it can make a difference. Will your agent be willing to cut their commission slightly to make the deal happen if you are a couple thousand dollars off what the seller wants?

Check out the following 7 tips for driving a bidding war when selling your home…

1. Priced Right

Those selling a home need to know that the most interest and action will occur in the first 48 hours, making it essential to price homes well. If you really want to create a buzz then some even suggest pricing it lower than you hope to get to fuel the frenzy.

2. Easy to Show

It doesn’t matter how great of a deal it is or how much interest there is, selling a home isn’t going to be easy if you don’t make it easy for agents to show or for buyers to come and check it out. You may even consider and electronic keypad for access when you aren’t available.

3. Staging

There are two theories on this. One is making sure the home is in pristine condition and staged to out shine competing retail homes. The other perhaps more eccentric strategy may be to smash one of your own windows and let the grass get long (watch out for code violations) so that it looks undervalued.

4. Build the Hype

The more hype before you even accept offers the more demand and interest. Let people know it will be available soon, price undisclosed.

5. Maximize Exposure

The bigger the splash you can make at once the more potential buyers you’ll get. When people come to see it and there are other buyers snooping around it will drive up urgency, motivation and price.

6. Open House Events

Following on from the last two tips, creating an open house event is a perfect way to bring these strategies together. Perhaps you’ll even make it an auction and sell to the highest bidder on the day.

7. Broker Opens

Hosting broker opens will allow you to enlist the help of dozens of agents, get them working on your behalf and tap into their buyer’s lists.

Keeping up with regular maintenance and ensuring all improvements and changes to a property are permitted is essential to being able to sell a home. Cities are on the war path as foreclosures rot and neglected homes bring down neighborhoods. Buyers need to think twice about buying homes with potential issues, such as those with garage conversions and those which have been split into multiple rental units and sellers need to be aware of just how big of a problem these issues can be.

Even if you thought you could get away with something for a while disgruntled tenants and nosy neighbors will be the first to pick up the phone and turn you in.

You may not even be aware of some code violations that have been there since you purchased your property or for things as seemingly idiotic as getting violated and fined for a tree blown down in a storm which the city actually removed from your property.

Unless fixed selling a home can be impossible. These often aren’t easy fixes either. Remedying them can mean submitting plans, obtaining permits and paying for the changes too.

Ignoring them means huge fines, outrageous daily interest rates and potentially hundreds of thousands of dollars due at the closing table. This can put homeowners underwater who weren’t already, sink sellers further underwater and this doesn’t even include additional items such as association liens and taxes or insurance payments made by lenders.

What to do? Remember fixing or paying these items down doesn’t always guarantee a sale either. However you may be able to find an attorney or title company who can help negotiate these items with the city on your behalf so that you can sell for cash to an investor or complete a short sale.

Some have recently complained that foreclosure auctions are being rigged; bank owned REOs have too much competition and that multi-million dollar buy and hold investors have pushed up the price of REOs 5.5% over the last 12 months, shrinking spreads for those flipping houses.

Still, wholesaling real estate offers incredibly low risk, fast cash and widening spreads as home prices go up. If these are the things you are looking for then yes, wholesaling real estate could still be the best investment strategy for you.

Plus, someone has to be rehabbing properties, recycling foreclosures and feeding wholesale deals to buy and hold investors.

Diversity is good too though. While wholesaling real estate may remain your primary strategy for the long term there is nothing wrong with diversifying, providing you don’t let it become a distraction or slow you down, especially as most others strategies won’t provide the same benefits.

Acquiring rental properties can be a great way to build up residual income and add to your long term wealth building tools, especially while you can lock into such low interest rates and rising rental rates.

Buying land for mid and long term growth has worked well for some and if you have the cash and really love getting your hands dirty then rehabbing properties can be very rewarding too. Just remember that you will quickly become known for the quality of your work, good or bad. What you do will either come back to haunt you or help you build a great reputation, brand and lots of referrals.

There may be nothing you can do about recent bruises to your credit but what you do from here on out can make all the difference in your financial future and that of your loved ones. Love it or hate it, your credit is likely the most valuable asset you have.

Good credit isn’t just about the negative items you have. Often it is a matter of not having enough good credit to outweigh the bad. Negative credit will eventually fall off your report but rebuilding your credit is likely going to require establishing new lines of credit.

The good news is that banks have recently reported relaxing credit standards for consumer loans and credit cards. Those who have been hit the worst may find applying for secured credit cards and loans or in-store financing the easiest route. Just make sure that you manage it wisely and don’t get further in the hole.

To establish enough new credit to qualify for a mortgage loan you will need at least 3-5 accounts. The length of time they are open and high credit limit are important too. Just don’t apply for too much credit or you’ll lower your credit score further.

If you are still coming up short know that some select mortgage programs will accept alternative credit. This means carefully documenting your rental payments and utility bills, not just with receipts but a paper trail showing how you paid them.

Foreclosures are speeding up since the recent multi-billion dollar mortgage settlement. As expected it appears very few will be helped and most will only see the sheriff showing up to evict them a lot sooner than anticipated.

Fortunately processing times for short sales have also been accelerated thanks to new systems and rules put in place by major lenders like Bank of America as well as Fannie Mae. This means sellers no longer have to hang around in limbo for months on end to fid out if their lender will approve the transaction. Those selling their homes for cash can get out even sooner and avoid foreclosure auctions and ugly evictions.

Cash incentives for borrowers opting for short sales are still out there, with some homeowners reportedly receiving over $20,000 to aid with their relocation. Unfortunately some of these programs are due to expire in August, leaving only a few weeks for homeowners to market their homes and find a buyer if they want any hope of walking away with cash.

There could also be serious and seriously expensive tax consequences for those who don’t complete their short sales before the end of 2012. The Mortgage Forgiveness Debt Act is set to expire then along with the tax break on the amount of mortgage debt forgiven by lenders. Otherwise it will be counted as income and taxes will be owed on it.

Recent figures from RealtyTrac show the top 10 states for foreclosure discounts compared to regular selling prices ranging from 47% in Louisiana to 36% in Georgia but these bargains often come with a price. Even $10,000 foreclosure homes can turn out to be teardown and new construction projects running up tabs well over $100,000.

It’s all about how much discount on the front end is worth the potential work lurking after closing.

Do you know how many tens of thousands of dollars it will cost to teardown a foreclosure if you find too many problems after you buy? How much more will it cost to rebuild?

Even if your work is limited to rehabbing properties or what appears on the surface to be a little clean up and cosmetic makeover how much can you handle yourself, do you have enough cash reserves to account for overages and carry the overhead?

This all means cash money out of pocket unless you are using an FHA 203 (k) rehab loan, Fannie Mae HomePath financing or qualify for another type of rehab mortgage loan.

Make sure conduct thorough inspections and get multiple quotes from contractors. If you plan to resell after fixing up your foreclosure you need to know the ‘subject-to’ value or ARV, as well as which improvements will yield the best ROI and increase the actual appraised value.

If buying a home as a residence or rental property is it wiser to just buy a home which has recently been remodeled and be able to finance the improvements and enjoy the peace of mind of a brand new property look, feel and smell?

According to a new report on common home improvements from Hanley Wood, at least 22 of them will lose home owners money. The best, according to the report, like finishing an attic bedroom or replacing a garage door barely help homeowners recoup 70% of what they put in. That is pretty miserable when fitting out a new living space could cost as much as $50k.

The average homeowner trying to bump up the value of their home so that they can sell or sell for a little more will find it very challenging to do so profitably without doing a good amount of research and shopping around. It’s clear from areas of the country like southwest Florida where existing homes are selling far below what it would cost to build them that construction costs are sky high. Be cautious about the projects on your to-do list when rehabbing properties or you may just be throwing good money after bad, especially if you are already underwater on your mortgage. Your rea estate agent may tell you that upgrading flooring for hardwood or staging your home will increase your property value but the truth is that while potential buyers may love the look and potentially even bid higher, they won’t actually add a dime to appraised value, unless you are making major renovations that lift the entire condition of the home.

On the other hand builders are reporting as much as 46% increases in orders for new homes. This means there are buyers out there and buyers who don’t mind paying top dollar for good looking properties. Merrill Lynch recently warned investors that 90% or more foreclosure homes are in need of serious work in order to prepare them to be rented or resold.

So for investors getting their hands on distressed homes cheap enough yes, there are big profits still to be made rehabbing properties and flipping them.

For the average homeowner who owes to much it may be wiser to let things as they are, opt for a short sale and find a cash buyer for selling their homes to.