There are times when conventional financing may not possible or as desirable. Here are some reasons both Buyers or Seller might consider “Creative Financing” .
POSSIBLE REASONS FOR USING CREATIVE FINANCING:
- BUYER IS EXPECTING MONEY OR ABLE TO REFINANCE SHORTLY AFTER A PURCHASE – A buyer may have a verified bonus , settlement, or is expecting help from family down the road. They may also be able to show that they can refinance the property within a reasonable time. If the funds are certain through any of the above sources, a seller carry or investor 2nd may become a consideration. It is better not to consider such financing without a solid exit strategy.
- NOT ENOUGH DOWN PAYMENT – Some lenders allow seller carrybacks to create a safer loan to value (LTV) for themselves. There are programs such as the 80-10-10 program, that allows a Seller to carry a portion of the down payment. Not all lenders and banks accept such transactions. Check with your lender to see if you qualify for such a program.
- DON’T WANT LOAN TO SHOW UP ON CREDIT REPORT – Some investors purchase property with private investors, as most do not report to credit agencies. There are many advantages created by using private investors and seller financing when there is a strong exit strategy for paying off the loan. It is unsafe to consider this option without a strong exit strategy.
- BUYER HAS POOR CREDIT – Whether from recessions, failed business ventures, health reasons, or family a problems, credit issues can arise when least expected. Sellers and private lenders often work with buyers with credit issues when there are strong exit strategies. In these situations the investor or seller may want a larger down payment to protect themselves. Some parties may find it easier to lend to people who are doing well after a recent bankruptcy, as they usually can’t file again for 7-10 years.
- LEGAL REASONS – Most lenders will not loan when there are legal issues, without a reasonable explanation, such a recent bankruptcy.
- PROPERTY REASONS – Some properties are difficult to finance, such as condos within a complex with low owner occupancy rates. Commercial properties where there are high vacancy rates are difficult to finance as well. Some of the most expensive homes in the world, because they are not insurable, are also difficult to finance.
- TAX REASONS – Since real estate is considered to be the most viable hedge against inflation, some sellers chose to sell through installment sale to they can pay taxes as they receive funds, rather than paying all the taxes at tome time. Whether for a tax shelter or out of uncertainty in the economy, sellers often feel its safer to keep their money with their property rather than risk it in a bank or the stock market.
Creative Financing may be exactly what you need to get started with your dream home.
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