Friday, September 5, 2008

How to Finance that Bargain Property

Charlotte’s current buyer’s market and higher foreclosure rate means that there are some great buys are out there, but do you have the money to make that investment?

So you have been reading the papers and watching the news. Falling real-estate prices may have you thinking that maybe now would be a good time to buy a new house as an investment or first home—and you would be right. Now is a great time to buy—if you have the money available and credit to do that.

Credit companies have become increasingly more conservative with whom they will extend mortgages to and at what rates. As they face their own financial crisis, they too are looking at “good deals and “sure things.” There decision is a business one, not clouded my sentimentality or dreams.

Of course if you are a borrower with excellent credit, high income, few debts and a large down payment you will likely have no problem getting a loan. However, if you are an applicant who don't meet those criteria, you may need to employ other strategies to secure loans to buy that great deal.

Take a long hard look at your personal finances…Are all of your credit cards paid off, or at the best rate possible? Do you have a significant amount in savings and/or assets you can sell (a car, a boat, etc.) Do you have equity from another property? Generally, the more money that you have to put down, the lower the interest rate you will be offered.

A business transaction…Many people face challenges when financing their first or second home, yet some investors are able to secure loans for several real estate investments. How do they do it? The success of acquiring these loans is directly tied to their ability to present the bank with a compelling business case for why the investment will succeed. For investment properties, prospective buyers need to demonstrate they will use case flow: rent minus mortgage, tax and maintenance, will cover the costs of ownership over a period of years. If you are a buyer who intends to live in the home yourself, having this breakdown of expenses is also important for you and the mortgage company—they want to make sure you can budget for the payments, expenses, repairs, and all of the other financial responsibilities you have.

Check with the Government…The federal government actively promotes homeownership. It is true that it wants you to own a home, and so there are many programs available for financing, even for people who don't qualify for traditional bank loans. However, these programs generally don't serve investors. Options like those provided by the Federal Housing Administration which runs the largest program, is popular since the FHA protects the lender from risk of loss, the lender is able to make loans to borrowers with riskier credit profiles. These programs are usually extended to first time home owners.

Other federal programs include:

The Veterans Administration Home Loan Program—provides mortgages to veterans.

The Department of Housing and Urban Development's Teacher Next Door Program—helps teachers buy homes.

The Department of Agriculture's Rural Development Housing & Community Facilities Program—extends financing to low-income buyers in rural areas.

Alternative Lenders… A fast-growing alternative source of funding is called "peer-to-peer" lending., which operates a Web site through which people borrow from and lend to one another, provides loans advertised at rates typically 3 percent to 5 percent below what credit-card companies would charge. Now, the loans on Prosper and similar sites tend to be less than $25,000, however, this option works well for down payments and often, banks will be more apt to extend a mortgage if there is significant down payment money available.

Know when is when…If you are finding that getting a loan of any kind is just not happening, there may be a good reason. Perhaps the property you have your eye on isn't the great buy, and everyone see it but you. You need to know when to walk away if there is any reason this does not seem like the “deal” you thought it was. Or maybe your financial situation just isn’t one that can take on an additional mortgage. Remember that you need to be smart when making a property investment that you could be paying for, for the next 20-30 years!

Want more information about the Charlotte area real estate market? Check out

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