Dear Clients, Friends and Fellow Associates~
I credit this economy for allowing my clients to get better properties at better prices. I credit this economy for challenging me to do things differently and become stronger. I credit this economy for the chance to find creative solutions for my buyers and sellers. We have listed several ideas below that can help our clients, friends and fellow associates move faster and save money in the lending process! We hope you find these useful.
Creative Financing 101:
Call your Stock Broker! Recently a client of mine found a great home, but alas had not yet sold his primary residence. Deciding not to take a chance on time he bought this great home and went to work figuring out how to pay for it. In his search for cheap money he found his Stock Broker offered a loan at 2 1/2 percent. Needless to say, I told him he should buy another! This portfolio loan program is offered by many brokerage houses or give me a call as we have sources we can share with you.
Ask the seller to offer financing! Back in the old days when we had interest rates starting at about 17% we often looked for alternative or creative financing from the seller before we ever headed to a bank. If the seller does not have a mortgage(if they do have a mortgage see land contracts below) they should consider the benefits of offering seller financing on their Hilton Head Property. Of course, seller financing makes sense for the second home or vacant lot owner. The benefits can include a faster sale and a better return. Right now, money markets are paying less than 1.5% and the seller could easily offer owner financing at 5 or 6%.
Ask the seller to do a land contract! Land contracts offer more attractive financing terms over the rigid qualification standards of institutional lenders right now. This program is similar to a lease purchase or rent to own and works for sellers that have an existing mortgage in place. A land contract wraps around the existing mortgage or is paid straigt to the existing lender. The seller typically offers this financing with a balloon payment of 3-5 years. At the time that the buyer secures bank financing the sellers existing loan is paid off and the deed transfers to the purchaser. And for non conforming properties, a land contract or seller financing makes the property easier to sell.
Ask the seller to carry a second mortgage! Given the higher down payments required by the lenders in today’s market, sellers would be wise to consider a 2nd mortgage on their property. If the seller has some equity, this is a great way to earn a higher return than investing this money in a mutual fund or CD, but the real benefit is it will help the seller position the property more attractively to a buyer. This is a great solution for a buyer that simply cannot come up with the down payment, but can easily afford the property.
Get a home equity line to buy a lot or second home! Although this is not a preferred financing alternative, many purchasers have used their equity to buy property in the area. These equity lines allow homeowners the ability to borrow up to $100,000 and still deduct all of the interest when they file their tax returns. Home-equity loans provide an easy source of cash. The interest rate on a home-equity loans although higher than that of a first mortgage – is much lower than on credit cards and other consumer loans.
Sellers and buyers both win! The benefits of creative financing for buyers include less stringent requirements to qualify, flexible terms, lower closing costs and a faster closing. Seller realize benefits that can include a faster selling process, less difficult appraisal requirements, the possibility of deferring a gain, monthly income, a better rate of return than money market accounts and a faster closing.
Money is once again flowing. Conventional and even Jumbo loans are now available with very attractive rates. If however you want to speed up the sale and reduce closing costs the above alternative financing solutions can help. With 30 year fixed rates lower than they have ever been timing is important. We may not be at the bottom, but we are pretty darn close!
Happy August on an Island.
Robbie Bunting &
Jane Hyers
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