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I'm looking into buying a home, or possibly building one, trying to get a better perspective on what works best. I have excellent credit.
I browse real estate sites sometimes and read some listings where the owner says something like "willing to finance". Someone told me that means they're willing to take a large chunk of money and then have paperwork done where I agree to pay the mortgage, although its technically there's until it's paid for?
This is supposably more common in this economy. I was hoping someone can explain this better about how it works and what's required from me. Since banks aren't giving mortgages anymore to someone like me. I never bough a home.
If you have excellent credit, why aren't banks "giving mortgages anymore to someone like [you]"? You didn't give much information as to why a regular lender would reject you.
Seller financing can work a few ways.
If the seller owns their house free and clear, they can offer to finance the property as a bank would. You pay a down payment and some closing costs, the seller sets the interest rate (often higher than market rate), and you make monthly mortgage payments directly to the seller. You may also be paying a higher purchase price from the seller. Additionally, the seller financing may have a balloon payment; it may be that the seller will finance your mortgage for the property for 3 or 5 or 7 years (or whatever you agree upon), but at that time the remainder of the principle will come due. You'll need to come up with cash or refinance with a traditional lender at that point. In this scenario, you own the house, the seller is just acting as the bank. If you don't pay, the seller can foreclose on you and take the house back.
A second option is to have a traditional loan for a portion of the mortgage and have the seller carry the remainder of the amount. You'll own the house in this case too, but you'll have to apply for a traditional loan and pay downpayments and closing costs as well. This works similarly to scenario 1, except in this case the seller is financing less but receives a partial lump sum of the purchase price from the traditional lender up front. This can give the seller a lump sum while allowing you to qualify for the traditional 20% down. Say if you only have 10% to put down, you can have the seller carry 10% of the financing and 80% by the traditional lender. The lender will treat it as if you had put 20% down on your own, and the seller financed 10% will appear on your backend ratio, not your front. If you don't pay, the first lender can foreclose on you and the seller is at the mercy of the first lender as he's in the second position, but luckily for him in this case he received 90% up front, so the most he can lose is 10%. If you are a safe bet and pay your obligations, he gets the last 10% at a premium interest rate that he gets to decide. This 10% may be on a balloon payment schedule as well.
The third option is an installment land sale contract, where the seller will indeed still own the property until you make all payments for the property to him. If you fail to pay, he can evict you but not foreclose on you. Eviction is easier than foreclosure but is certainly less damaging. If you "purchase" the property under this contract at $350,000 and two years down the line the house is worth $275,000, you could stop making payments and the seller will then evict you. It's more dangerous in my opinion because buyers have less motivation to stay and pay and as the seller you may be the one left out in the cold with a property that is now depreciated and may have suffered damages from the buyer living there. So with this option, if your finances are shaky the seller may demand a higher interest rate.
I think all my information is correct and I hope it is helpful.
Note that if the seller still owes money on the house, the only viable option may be option #2. Option #1 and #3 may trigger his current mortgage to be due in full and if the seller doesn't have money to cover that, he most likely won't go for full seller financing.
I haven't been working in over a year as far as I can prove, so I'm mostly relying on 25k savings and half of my income which is unemployment. I haven't asked any banks yet. I'm still weighing rather I want to build or buy a home. It looks like it would make more sense and be cost effective to build unless some home prices go down. Many properties on the market still don't look very reasonable in my eyes and if they do, they need lots of work.
The first option sounds better to me than the 2nd because I'll only worry about paying the seller.
It does sound better, of course, but it's harder to find a seller that's willing to finance the property in full (minus your downpayment, of course).
If you're unemployed, living on unemployment and 25k of savings, are you sure that your situation will change in 3, 5, or 7 years? What happens if the balloon payment comes due and you are still unemployed? It definitely won't make your situation any easier.
What's the hurry to build a house or buy vs a rental? Your situation seems very unstable to me, and you'd be putting yourself at long term risk buying.
I haven't been working in over a year as far as I can prove, so I'm mostly relying on 25k savings and half of my income which is unemployment. I haven't asked any banks yet. I'm still weighing rather I want to build or buy a home. It looks like it would make more sense and be cost effective to build unless some home prices go down. Many properties on the market still don't look very reasonable in my eyes and if they do, they need lots of work.
The first option sounds better to me than the 2nd because I'll only worry about paying the seller.
LOL, and you're looking to buy a home with savings? Are you really this stupid or is this a troll thread?
Banks being hard to get loans in this economy. LMFAO!!!!!!!!!!!!!!!!!!!!!!!!!! Wonder why.
Hey, can you guys give me a home loan? I currently have no job but I make mad money on unemployment and have 25k in some other bank. No? Really? Stupid economy keeping me from getting a home loan.
It does sound better, of course, but it's harder to find a seller that's willing to finance the property in full (minus your downpayment, of course).
If you're unemployed, living on unemployment and 25k of savings, are you sure that your situation will change in 3, 5, or 7 years? What happens if the balloon payment comes due and you are still unemployed? It definitely won't make your situation any easier.
What's the hurry to build a house or buy vs a rental? Your situation seems very unstable to me, and you'd be putting yourself at long term risk buying.
Well I get unemployment but I don't depend on it. I will have a steady income when it runs out. Rather not get into details if u know what I mean. The problem is proving this to the bank. I need no more than 100k to build the home I want, or possibly buy one. 100k is actually giving a high conservative estimate for the home I want and location. A few weeks ago I didn't even consider or think much of financing, but I am now to consider all possibilities.
I am in a rush to get the project started with aquiring land etc, but no huge rush to finish it.
Rather not get into details if u know what I mean.
Any seller offering seller financing will do his due diligence to make sure that you're able to pay, just as a bank would. If you default on the payments, that's hassle and annoyance that he has to deal with getting you foreclosed on/evicted.
Neither a smart seller nor a bank will just take you at your word that "I'm on unemployment but I don't really need it." I don't know about you but I don't assume that many people that qualify for unemployment have a steady stream of LEGAL income at their disposal.
If your income isn't legal, I don't know that any bank or seller would be willing to take the risk on you. Why not just save up your steady stream of questionable income and simply purchase with cash?
You'll have to explain to the government where the money came from, but it doesn't seem like you're very concerned with that at all.
Maybe I'll be put on payroll when unemployment runs out, but not sure I want to waite that long. It's a catch-22. Thanks for the input.
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