FINANCING FICTION

Myths and misconceptions create some of the greatest barriers among would-be homebuyers. As a real estate agent, this is where your expertise becomes particularly crucial. Erroneous information abounds in virtually every aspect of the homebuying process, but the most harmful are those that involve money.

One of the biggest misconceptions, and one that we encounter frequently with our clients, is the idea that a down payment must be at least 20 percent of the purchase price. Unfortunately, this number frightens away many buyers who in actuality would qualify for a mortgage. The reality is that, in most cases, the minimum required for a down payment for a primary residence is only 3 percent!

In addition, there are many programs designed to assist with the down payment, the problem is most people aren’t aware of these.

For example, there are several down payment assistance programs that make funds available to buyers that cover all or part of that minimum 3 percent down payment. These come in the form of a grant or a “forgivable” second mortgage. These programs are typically geared toward the first-time homebuyer; however, some are available to anyone.

SEPARATING FACTS FROM FICTION

If your client thinks this sounds “too good to be true,” rest assured they are regular, government backed, non-subprime loans. Furthermore, these programs are available through both conventional and FHA financing. The bottom-line is that it is possible to buy a home using one of these down payment assistance programs with virtually no out-of-pocket money for the buyer.

Other programs feature loans with a remarkable 0 percent down payment. Of course, these are more specific to particular groups and have additional requirements the buyer must meet in order to qualify. These include:

VA LOANS

• Exclusively for veterans and their spouses.
• Active duty military may qualify depending on time served.
• 100 percent financing with 0 percent required down payment.

USDA LOANS

• Offered through the USDA Rural Housing Development program.
• 100 percent financing with 0 percent required down payment.
• There is one caveat: property must be in a USDA eligible area.

As you can see, there are many loan options available for buyers. Because so many people in the homebuying market have limited information while at the same time are inundated with myths and half-truths, it’s imperative that you are armed with correct and up-to-date information to reassure and guide them through the process.

My team and I are always available to provide accurate information, debunk myths, and even answer your questions regarding specific buyers and transactions. You’ll be a hero to your clients when you take the fear out of home financing and bolster their confidence in their purchase – we can help make that happen!

Low inventory does not have to be an insurmountable obstacle. As with most challenges, a little creative maneuvering can go a long way; or, as the popular catch phrase emphasizes “think outside the box.”

Fixer Upper

Surprisingly, alternative funding is a great place to start. With the scarcity of homes on the market, and how quickly they are selling (many listings receiving multiple offers), I suggest my clients consider setting their sights a little lower or change their approach. Instead of trying to find that “perfect” property, I recommend they look at properties that need work or aren’t quite up to their standards … yet. A renovation loan is the perfect solution, and truthfully if approached with the right attitude, it can be a lot of fun with tremendous rewards.

Custom Not So Costly

Another option, albeit a bit more aggressive, is to purchase a plot of land and build. This might sound like a daunting challenge, but what better way of ensuring they truly end up with the home of their dreams without overpaying for it?

Today, the airwaves and internet are filled with creative and innovative do-it your self ideas. Some of the most popular cable programming features would-be buyers seeking out a property in the neighborhood of their choice, but with considerable work needed. These “fixer-uppers” ultimately prove to be the star of the neighborhood with a bit of money and plenty of elbow grease. The new homeowners have exactly the home they’ve dreamed of, in a community they admire and typically for significantly less financial expenditure than if they had found the home in its renovated condition.

Custom home building has similar if not greater results. Beginning from the ground up, these families can dictate not only the number of bedrooms and baths, but the floor plan and all the personal touches that make a house a home. And again, typically the final property will cost considerably less than if the buyer had purchased it already built.

So Many Options

Unlike the limited choices available in the homebuying market, there are ample options when it comes to selecting a renovation or construction loan. Before discussing these with your clients, be sure to be up-to-date with every aspect. Obviously, these are not the same as a typical mortgage and you should be prepared to clearly convey these differences to your clients.

One of the most frequent concerns applicants have with regards to a renovation loan is whether the appraisal on the property takes into consideration the value of the home once these improvements are completed. The answer is yes! This ensures that the amount available adequately covers the anticipated work. The appraiser gets a list of what renovations will be done from the contractor before he/she does their inspection, so they can assess the after-renovation value

Happy Ending

Much to the surprise and delight of my clients, renovation and construction loans are essentially regular mortgages. They just allow the buyers to bundle the renovation/ construction costs with the acquisition into one mortgage (as opposed to mortgaging the property and then taking out a home equity loan on top of that to pay for repairs). It’s one loan with one rate. Construction loans and renovation loans are one mortgage that each include financing of the repairs/renovation and construction costs respectively.

In my experience, these options have proven to be very successful for those clients who choose this route. A little creative thinking and stepping outside the box can bring delightful results for you and your clients. Rather than be deterred or disappointed with what’s currently available, a renovation or construction loan can open myriad opportunities with wonderful results.