Another way to avoid dealing with the usual lending sources is to have the seller carry back financing. This can be done pretty easily if the seller owns the property outright, that is, the seller has no mortgage loan on the property. While this is not the norm, it does happen often enough. In a case like this it is possible to make a deal with the seller in which you give a small down payment or maybe even no down payment at all. The seller will receive payments from you at a stated rate of interest for a specified period of time. The terms may include a balloon payment that is due at a certain date. An example would be that you buy a house for $100,000 with a 10% down payment ($10,000) at an interest rate of 8% for 30 years with a 5-year balloon. In plain English this means that you give the seller $10,000 when you buy the house and then make payments to him based on a $90,000 mortgage with a payment term of 30 years and an interest rate of 8%. The 5-year balloon means that the remaining balance of the loan is to be paid at the end of 5 years. You can pay the mortgage off by selling the house or refinancing the loan prior to the due date of the balloon payment.
There are a number of reasons why a seller would be willing to carry back financing on the house. If the house is in poor condition, it will be easier for the seller to find a buyer if he offers a financing option. The seller could be in a position where the thought of receiving a monthly check is appealing. It could also be a benefit for him in terms of taxes if the transaction is treated as an installment sale. When looking at properties it is always a good idea to ask if seller financing is available.
It is also possible for a seller to carry back some financing even if he does have a mortgage on the house. If the seller has a large amount of equity in the property he may be willing to take some or all of it in the form of a mortgage. Let's use the same example of a $100,000 purchase price but this time we'll assume that the seller owes $50,000 on a mortgage. The buyer could obtain a first mortgage loan for $50,000 and the seller could carry back a 2nd mortgage for all or part the balance. The buyer would make two payments each month, one to the primary lender and another to the seller. A seller 2nd is actually quite common in cases where there is a lot of equity involved. The primary lender may have rules concerning how much a seller may carry back. Lenders tend to be concerned if a buyer has little or no money of his own tied up in a deal.
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Vicki Irvin
Real Estate Investing Queen
http://www.therealestateinvestmentqueen.com
What if you could be a cash buyer without having any cash? If you have equity in your home or other investment properties it may be possible to use it. You could refinance your current mortgage or add a second mortgage. A very good way may be to use a home equity line of credit or HELOC. A HELOC has several advantages over refinancing or taking out a second mortgage. A HELOC frequently costs very little, if anything, in the form of closing costs. If you take the HELOC on an investment property, you may have to pay for an appraisal or other costs but it is still less expensive than a refinance or second mortgage in most cases. The rate on a HELOC will typically be higher and is based on an index, such as the prime rate, so the rate will vary as the index changes. Another advantage is in the very nature of a line of credit; you only use what you need, when you need it. You can take the money out as the money as needed, and pay it back when the flip project is sold. When you are ready for your next project, it is there to be used again.
There are disadvantages to a HELOC as well. The rate will vary based on the fluctuation of the index. This means that your payments can change and it could wind up costing you more than expected each month. The money is readily available in the form of checks and, in some cases, credit cards. This may tempt some people into using the money for things other than what was originally intended. Still, if it is used responsibly, this can be a great way to finance your flipping ventures.
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Vicki Irvin
Real Estate Investment Queen
http://www.therealestateinvestmentqueen.com
So you've found a property to flip; now you have to pay for it. There are many different ways to fund a typical real estate purchase, but flipping is a different animal. If the rehab is minor, perhaps only cosmetic or small repairs, you might be able to use conventional financing sources through banks and mortgage lenders. But, if it is like many flipping properties, the traditional lenders will not touch it. These sources only want to provide mortgage loans for everyday properties to your typical homebuyer. They do not understand the flipping marketplace, nor do they want to.
If traditional sources will not touch it, what do you do? There are many different options to choose from depending on the circumstances. Some of these options require that you have good credit while others do not. Some sources require that you invest a substantial amount of your own capital but others don't. Many sources of capital have a difficult approval process yet others are relatively simple. Which one is best? The answer is that it depends, the borrower's circumstances matter in some cases while not in others. Where you go really depends on the situation that you are facing. Let's explore some of these options.
The simplest way to buy a property is to just pay cash. That might work on a property that is cheap enough or if the buyer happens to have a lot of idle cash on hand. Of course, that usually isn't the case. Buying a property with cash makes for a very easy transaction with little or no red tape to deal with. Being a cash buyer can also give you an edge over any other competing buyers. A seller is more likely to accept a cash offer over an offer involving financing because they know that the deal is more likely to close. This is especially true in the case of a seller who is trying to sell a distressed property. Distressed properties pose a challenge for sellers because buyers are unable to get approved for traditional mortgages and are unaware of other financing methods or unwilling to take that route. There is definitely truth to the saying that "cash is king."
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Vicki Irvin
Real Estate Investment Queen
http://www.therealestateinvestmentqueen.com
If everything has been taken care of properly then closing escrow should be a fairly simple step. When all of the contingencies have been met and last minute details have been worked out, then the escrow officer will have the closing documents prepared. The settlement document, called the HUD1, will be prepared showing the financial aspects of the transaction for each side.
By this time the Title Company will have completed the title search to be sure that the title is free of liens or judgments, known as clouds on title, and that the deed can be transferred. Sometimes there are issues that need to be clarified prior to the deed being transferred. There may be one or more liens on a property that should have been released earlier but haven't been. Most of these issues are minor and are cleared up well in advance of closing.
There is always the possibility that someone else has a valid claim to the property due to an error at some point in time. To protect the buyer against such an occurrence the Title Company will issue a title insurance policy. In the event that there was an undiscovered claim and someone else is the rightful owner of the property, the title insurance will pay the claim so that the buyer isn't harmed financially. This is an incredibly rare event, and as such title insurance is relatively inexpensive, but you wouldn't want to be without it. The buyer or the seller can pay the title insurance policy premium. Local custom usually dictates who pays, but it is a negotiable item.
On some occasions, a dispute may arise during the close of escrow. This usually happens because there was a misunderstanding on some point or because someone didn't take care of something properly. If there are attorneys involved in the transaction then they will usually work things out. If there are no attorneys, then it is up to all of the parties involved to resolve the issue.
Once everything is complete and the money changes hands, the deal is done. If there is a loan involved then you may have to wait for the lender to fund the deal for it to be complete. When the money has transferred and the papers are signed you will get your keys. Congratulations, you now own the house.
Are you ready to get to work?
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Vicki Irvin
Real Estate Investment Queen
http://www.therealestateinvestmentqueen.com
The inspection report is your opportunity to negotiate additional concessions from the seller. If the seller is really motivated to complete the deal, he will not want to let the inspection report stop it from happening. If the inspection uncovered any major problems that you were unaware of, you may want to walk away altogether. It is more likely that the report will uncover some things that will get the seller to agree to drop the price a little more. If the seller has reached his lowest price limit, and refuses to come down any further you will have to decide whether it is worth it for you to proceed.
When everything has been agreed to, and all of the inspections have been completed, and any contingencies have been met, then, and only then, you have a deal. You are now ready to proceed to the next step and close escrow.
Stay Tuned for More!
Vicki Irvin
Real Estate Investment Queen
http://www.therealestateinvestmentqueen.com
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