I think that there are still challenges in today’s real estate market in either buying or selling a house. Suffice it to say that there are a lot of folks who owe more than what their home is worth (“underwater”). There are enough people who have credit problems because of the recession that started in 2007. Lots of recent college graduates are strapped with student debt and no jobs and living at home. The economic “recovery” has begun but it is taking forever. And certainly the banks and mortgage companies have not eased up that much on underwriting criteria for buyers. An average credit score to get a conventional mortgage is still almost in the mid 700s. FHA and VA are still options but I think we need to do a better job in spreading the word on those programs and how they work. Plus there are concerns regarding FHA continuous funding. FHA mortgage insurance premium is the highest of any program and never goes away until you finally sell.
I would speculate that with the uncertainty of the economy, that customers are just reluctant to take the risk in owning.
I’ll offer a few alternatives that you might consider in getting into the housing market. I mean you have to live somewhere. Might as well be a place of your own. Here are three for your consideration.
1. Rent with an option to buy. Probably the most well-known and popular. However it can be the most misunderstood program. An “option” is exactly that. You enter into a lease to rent a home and you agree with the owner that at some point in time you will, or will not, exercise the option to buy the house at an agreed upon price. You may or may not have put up any money toward that option at the lease signing. You and the landlord may have decided that a portion of the rent goes toward the purchase price or the option. Just remember if you don’t exercise the option, you just remain a tenant and have no ownership rights. Whether you get any money back is determined by the terms of the option agreement.
2. Lease purchase , land contract or installment contract. Buyer and Seller enter into an agreement of sale for the purchase of property. The sellers maintain the title to the property during the term of the contract and the buyers have an equitable interest. A note of caution here to both parties. If the seller has an existing mortgage on the property there may be and probably is a “Due on Sale ” clause in the mortgage documents. This will indicate that if any transfer of equity occurs then the entire loan will become due in full immediately. Depending on the size of the existing loan, this could cause some major problems for both buyer and seller. Any real estate agent worth their salt will check all recorded documents before proceeding with a proposal. A good real estate attorney needs to be involved for each party. If there is no mortgage , then the owner can act as the bank and transfer title to the buyer . Depending on any down money and credit obligations the equity build up is subject to negotiations at the time of the offer. Again I would recommend a good real estate attorney get involved with any preparation for both buyer and seller.
One nice benefit of this type of transaction is that the buyers can get the tax benefits of home ownership.
3. New program. Just heard about this one. A company buys the home for you and the client enters into an agreement of sale to purchase the property within a certain period of time, i.e 5 years. You put up a down payment of 5 or 10% and pay a 3% admin fee to the company at the time of occupancy. You get the house and its yours to live in as a renter at an agreed upon monthly rent and purchase price. The big difference between this and the rent with option is if you do not get a mortgage by the end of the term you get your down payment back. They keep the 3%. You also agree to a 2-3 % annual rent increase during the term. Again this program is for people who have not been able to qualify for a normal mortgage because of unusual catastrophic circumstances. Lost a job, unusually high medical bills, and then lost a home through foreclosure or just had some hard times and are trying to work yourself back. That’s why you agree to a 5+ term. And of course if you can a mortgage sooner, there is no prepayment penalty. There are some additional features. Give me a call and we can discuss some additional details.
A few “options” to think about. Just leave me a comment. Contact me via Facebook, Linkedin or Twitter or the old fashion ways of email, firstname.lastname@example.org or cell phone 6107372310
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