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NAR Talking Points ~ Financing Alternatives
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Despite
continued low mortgage rates, some potential homebuyers remain shut out
of the market. However, prospective homeowners may be able to overcome
financing obstacles by using alternatives to standard home financing
methods. Financing alternatives include rent-with-option-to-buy agreements. Under a lease-purchase arrangement, part of the tenant's rent - usually 10 percent to 20 percent -is applied toward a down payment on the home. When the down payment savings reach a specified amount, the tenant obtains financing for the remaining amount of the purchase price and title is conveyed. This arrangement generally works best for buyers who need an extended period to raise the funds, and for sellers who do not need the equity from the sale of their home to purchase another home. Seller financing involves an agreement from the seller to take back part of the mortgage amount as a promissory note. The buyer might make monthly payments directly to the seller, rather than to a lender. A benefit of seller financing is that buyers do not have to pay points and, thus, are able to cut closing costs. Equity sharing involves a negotiated joint-ownership of real estate by two or more parties, with one party occupying the property as his principal residence. With equity sharing, the down payment and/or closing costs may be made by one party, and the monthly mortgage payments made by the other. Or, both the down payment and the monthly payments can be shared, in equal or unequal amounts. A concession is anything of value added to the transaction by the seller, builder, developer, salesperson or any interested party. It also may include any closing costs that normally would be paid by the buyer or cash given to the buyer to reduce non-housing debts. From the seller's perspective, there may be little difference in offering a monetary concession or lowering the property price. However, to a buyer, a concession maybe preferable, because it is money that can be applied directly to the purchase. In recent years, lenders have offered an increasingly wide variety of low- or no-down payment programs to enable people to buy homes of their own. Many of these programs go hand-in-hand with programs offered by Fannie Mae and Freddie Mac to reduce down payment and closing costs. Reproduced from www.realtor.org "For The Record": Spring/Summer 1999 - Talking Points for Association Executives |
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