Held July 30-August at Inman Connect Las Vegas. On January 1, 2024, the noise and misinformation will be cut away, all your big questions will be answered, and new business opportunities will be revealed. join us.
Despite a challenging market, demand for homes remains high because Americans know that buying a home remains a rock-solid investment. Over the past decade, home values have far outpaced inflation: House prices increased by 63% Since 2013, inflation has increased by 34.7%.
However, financing remains a common sticking point for many potential buyers. Mortgage rates are prohibitively high, although 30-year fixed mortgage rates were hovering around 7% as of Tuesday. Regardless, many buyers who can’t qualify for a traditional mortgage are getting creative and looking for cheaper alternatives.
About 20% of U.S. borrowers They use alternative financing methods when purchasing a home, according to Pew Research Center findings. Of these buyers, 22% used alternative financing when purchasing multiple homes, indicating significant and persistent demand for unconventional financing.
For real estate agents, emphasizing diverse financing options is one of the easiest ways to attract more listing traffic. Here are some programs and options to know about.
Editor’s note: Remember, real estate agents are not loan officers or mortgage professionals. Consult with a trusted mortgage professional and your broker to ensure you are providing the best education and advice to your clients.
down payment assistance
Down payment assistance programs are some of the most popular financing assistance options. These programs can help cash-strapped buyers boost their sales with a much-needed cash infusion.
However, not every buyer will qualify for assistance. These programs are typically targeted at first-time homebuyers and non-investors who must meet various prerequisites and qualifications.
Many buyers don’t know about these programs, and those who do may not realize that the assistance often takes the form of grants—which they don’t have to pay back—zero-interest loans, or loans that are completely forgiven if they live to stay in the home for a period of time. time.
There are also programs, such as Fannie Mae’s HomePath Ready Buyer, which provides qualified first-time homebuyers with financial assistance of up to 3% to reduce costs, among other benefits. In addition to the eligibility criteria, the only requirement is that recipients complete a homebuyer education course.
Real estate agents do not have to highlight these plans in their actual listings. Marketing experts recommend publishing articles, blog posts, or information sheets on their website as a highly effective way to attract potential buyers.
government-backed mortgage program
These mortgage programs are very helpful for qualified buyers because they often have relaxed credit score requirements and low or no down payment.
USDA loans are only available to buyers in certain geographic areas designated by the USDA as “rural.” Most of the United States falls into this category when it comes to this mortgage program.
These loans require no down payment, reasonable mortgage rates, and very generous credit requirements. If you have a home in an eligible area, highlighting this financing option is a no-brainer.
Department of Veterans Affairs loans are available to veterans, active duty military members, and their spouses. Buyers who meet these qualifications can get government-backed loans with little or no down payment and very generous credit score requirements, or none at all.
Finally, FHA loans are government-backed and are a favorite option for first-time homebuyers. Like other government-backed loans, FHA loans have down payment options as low as 3.5% and good credit score requirements, although they come with requirements related to purchasing FHA mortgage insurance.
seller financed mortgage
This arrangement is essentially the same as a bank mortgage, except the seller acts as the bank. Title to the home is transferred to the buyer, who then pays the seller directly.
While this setup may be a simple and convenient way to sell a home, it doesn’t offer the buyer as much legal protection as a mortgage issued by a traditional bank. Additionally, seller-financed mortgages often have much higher interest rates than conventional mortgages.
If you’re a real estate agent and you have a seller willing to accept this type of financing, make sure both parties understand exactly what they’re getting into.
balloon mortgage
This somewhat obscure type of mortgage upends the typical monthly payment plan. With a jumbo mortgage, the monthly payments are very small or not required at all for a specified period of time. At the end of the period, a lump sum or balloon payment is due.
House flippers often use these loans because they’ve likely sold the home by the time the balloon payment is due. This loan is also suitable for buyers who will receive a large sum of money in the near future, such as an inheritance, a job bonus or an insurance payment.
Rent to own or lease purchase agreement
This setup is similar to a seller-financed mortgage, but there is one key difference. In seller-financed mortgages, as well as conventional mortgages, ownership of the home transfers to the buyer at the beginning of the agreement.
In a rent-to-own or lease-purchase agreement, the buyer receives the deed to the home only after making a certain amount of payments and exercising the option to purchase.
This means the buyer will be a tenant for the first few years of the home, with no ownership or equity. During this time, a portion of their monthly payments goes towards the down payment.
Ultimately, buyers will be able to exercise their right to purchase the home, but there are no guarantees. Buyers must apply for a conventional mortgage, and if they don’t qualify, they have little recourse and may not be able to get their money back from the seller.
One of the main concerns is that if the home appreciates significantly during the lease, the tenant may not be able to afford the mortgage. Still, it may be a viable option for buyers who can’t yet afford a down payment or who need time to improve their credit score to qualify for a mortgage.
Luke Babich is CSO at Clever Real Estate in St. Louis.Connect with him on Facebook or Twitter.
