How to finance a fixer upper.
With no credit or a permanent employment or with a low paying part-time, not enough to qualify for a 30-year loan. Interest rates are low these days but most buyers have unacceptable credit or just don't have time on the job or enough income; it usually takes 2 years on a job and no more than 33% of monthly income towards house payment.
With low credit (below a score of 620). One solution is to find a home that needs repairs and that the owner is willing to finance the sale price.
HUD, VA, Fannie Mae and Freddie Mac discount the asking price for their auction houses from 25% to 35%. They discount it a bit more if you specify that you are going to use the property as your primary residence and they discount it, even more, when the property HAS NOT SOLD because no one wants it, for one reason or another.
Without money or very little cash or with little credit it is difficult to buy a house that needs a lot of repairs; but it can be done.
Through:
1. HUD 203K program (Buy and Repair Loan program)
2. U.S.D.A. Direct Section 502 Loans (Low credit okay, low income okay)
3. Contract for Title (Deed)
4. First Mortgage and Promise
5. Hard money
If your credit score is ' fair ' (620 score) you may be approved to purchase and repair the home through a 203k loan from HUD or Agriculture Direct.
HUD (Housing and Urban Development) has a program called 203K (http://portal.hud.gov/203k). With this program you can borrow to buy and repair. Not all banks make 203K loans; before applying for a HUD 203K loan ask the bank if they do it; not all do.
Department of Agriculture direct loans for single family homes. Department of Agriculture-Direct Loan Program- Section 502, helps low and very low income applicants obtain decent, safe and sanitary housing in eligible rural areas by providing payment assistance to increase the applicant's ability to pay. Payment assistance is a type of subsidy that reduces your mortgage payment for a short time. The amount of assistance is determined by adjusted household income. Fixed interest rate based on current market rates at loan approval or closing, whichever is lower. The interest rate, when modified through payment assistance, can be as low as 1%. Up to 33-year repayment period: 38-year repayment period for very low-income applicants who cannot afford the 33-year loan term. Prompt payment is generally not required.
• Generally, rural areas with a population less than 35,000 are eligible and
• The loan can be used to buy and repair the property.
Contract for title is a title conversion contract; known as an ‘installment purchase contract’ or ‘installment sale contract’. It is a real estate transaction in which the purchase of the property is financed by the seller rather than by a third party, such as a bank, credit union, or mortgage lender. It is often used when a buyer does not qualify for a conventional mortgage.
Some sellers prefer to have payments:
• Less capital gain to pay in their income tax,
• Money kept secured in real estate and not at a bank earning low return,
• Debt against the property.
Title contract for deed are also a favorite trick for real estate scammers who either “move” a property among multiple potential home buyers or collect payments from a buyer while letting the property fall into debt with an unpaid mortgage.
You can finance a property with the owner with little or no money, asking the seller:
1. ‘Contract for the Title’ of the property or,
2. First Mortgage and a Promise of a global payment (Balloon Payment)
of the balance in 12 to 24 months.
After repairs the property's value increases and you can refinance up to 80% of the property's value. If the seller (s) are willing to finance the sale price or enter into a contract for the title of the property.
When looking for seller financing it is not uncommon to offer to pay 5% to 10% more on the interest rate that a Bank offers. Offering a seller/owner to finance at 5% to 10% more than the interest rate that Banks are offering is an incentive; also, offering a balloon payment after 12 to 24 months.
Before signing ‘Contract for Deed’ (a title conversion contract), as a prospective home buyer you should ensure fully understanding the scope of the obligations under the contract, all costs for which you will be responsible and the risks you incur, including how quickly you can lose the house and all the payments you have made. Register the ‘Contract for Deed’ (conversion contract).
Hard Money loans are "last resort" loans or short-term bridging loans. A hard money loan is a type of loan that is secured by real estate. These loans are mainly used in real estate transactions, and the lenders are generally individuals or companies and not banks.
