Explore creative financing options
You know the old expression, "There is more than one way to skin a cat," used when you want to make the point that there is always more than one way to get something accomplished. Financing real estate doesn’t always have to be done in the conventional way; you would be surprised at the options.
Having parents is a wonderful thing, not only for the red fire engine and Barbie dolls on Christmas morning, but they also come in handy for first time homeowners. With real estate prices and interest rates both on the move up, first time buyers are faced with either purchasing less expensive homes or adding more cash into the pot. Parents can help close the gap for first time buyers by gifting money to their children.
Financial experts recommend that it is best to gift funds rather than loan the funds if you want to help out the kids. Lenders view a loan as another financial burden that affects a borrower’s ability to make monthly payments, possibly disqualifying them from financing. A gift on the other hand is acceptable for a down payment as long as the homeowners provide generally at least 5 percent of the loan amount. In addition gift money will be recognized by lenders only on a primary residence.
In 2012, the percentage of first time home buyers who received a gift from family or friends towards the purchase of their home was 24 percent, up from 22 percent in 2009.
It’s also not uncommon for sellers to hold the mortgage for buyers for a specified number of years at an agreed-upon interest rate. This practice is more popular when sellers are having a tough time selling as an inducement to buyers. With the market improving and a shortage of homes for sale it will be harder to find homeowners who want to do this but there could still be hard to sell properties available that would lend themselves to this kind of financing.
Wealthy buyers always have more options when buying real estate and one of the creative methods that has emerged in recent years are loans secured with high value assets like art, investment accounts, even private jets and gold bars. These loans can be approved in as little as 30 days and do not require a home appraisal, which frequently trips up real estate transactions. However, these types of loans will require reappraisals annually on the collateral and investment portfolios are subject to market losses that may require the lender to add assets into the account.
Finally, many affluent borrowers are opting for interest-only mortgages which got a lot of low end buyers in trouble during the financial crisis. High-end borrowers can save 30 percent to 40 percent on monthly mortgage payments on jumbo loans if they qualify for interest-only mortgages. Some financial institutions are reporting that interest-only jumbo loans are making up 15 percent to 20 percent of the market. These loans are especially popular with buyers who plan on owning the property for less than 10 years since interest-only payments are usually permitted only for the first 10 years of the loan.
So, there you have it, if you want to get creative financing, the best thing to do is have parents with money or own a Picasso. For the rest of us, looking outside the box for financing is worth the effort and you don’t need to abuse a poor cat.