You bet it does! Creative financing, over the last 20 years, has seen a dramatic decline in use. Banks today are struggling to stay solvent and, since the housing bust in 2007, more than 270 banks have closed their doors causing the credit market to shrink.
As lending standards continue to become more stringent, creative finance alternatives will become paramount to the housing recovery. Here are a few of the common ways creative financing can help sellers sell their homes in today’s tough market.
1. Interest Only Loans – These loans are basically for an investor. The investor will buy your home using small interest payments to keep the payments low while they rehab the property. Once they finish the rehab, they will sell the home, usually within a few months, and will pay the loan off in full.
2. Seller Financing or ‘Carry-Back’ – Seller financing is a loan for the full purchase price of the property carried by the seller. It’s performed by the seller signing over the title in exchange for a promissory note and deed of trust. If the buyer defaults they forfeit all payments made and the seller will take back ownership of the home.
3. Seller Second Mortgages – This is for buyers that can’t come up with the full amount of the purchase price. An example would be a buyer that can only get a loan for 50% of the purchase price. To make the deal work, the seller would carry the other 50% of the price in a second mortgage. The process is much the same as a carry-back. The seller exchanges the title for a promissory note.
4. Assume Payments – In the future, this type of financing may become more common due to the amount of FHA loans used over the last couple years. Most FHA loans are assumable. If the seller has an assumable loan, the buyer will take over payments with little to no down payment. If the seller has equity in the home, the buyer may have to pay that amount to the seller.
5. Private Money Loans – Private mortgages are made by private lenders which operate differently than traditional banks and government institutions. A private mortgage is an asset based mortgage and is usually based on the upfront equity the borrower has negotiated in the purchase contract. A private mortgage comes with a higher interest rate than traditional banks, usually around 8-12%. Many private mortgages come with a balloon payment within 6 months to 3 years.
6. Hard Money Loans – A hard money loan is common with investors who rehab properties. Again, these loans usually come with higher interest rates and a balloon payment within a few years. A hard money loan is similar to private mortgages, but they come from hard money lenders rather than private lenders. Hard money lenders usually obtain financing through their private lender contacts with whom they already have a credit history.
Are you trying to sell a home in Hawaii? If you are, Big Rock Investments is looking to help distressed sellers on the islands. We specialize in stopping foreclosures, short sales, quick cash closes and private lending. Learn more by getting a FREE REPORT HERE or call us at (808) 377-4379.