Home Buyers Use 100% Financing

Over the last decade, typical conventional lenders have been offering 100% financing to home buyers. This usually involves creating an 80% first trust deed and a 20% second trust deed. This further allows home buyers to purchase a home with no money down.

To understand how this works, you will also need to understand two basic types of loans:
Conforming and Jumbo

Conforming interest rates cover loan amounts up to $417,000. Jumbo loans amounts cover loans over $417,000. The differences between conforming and jumbo loans are usually the interest rates and certain conditions required. Conforming interest rates are lower than jumbo interest rates. When you are looking on the internet for current interest rate quotes, the typical rates shown are for conforming rates.

Your first trust deed or the 80% loan is based on conforming or jumbo rates, depending on the purchase price of your property.

The second trust deed or the 20% loan is based on what’s called “piggy back” 2nd financing, wherein the lender gives special rates based on the fact that you are also obtaining a new first trust deed with that lender.

The interest rate for the 2nd trust deed is going to be higher than the first trust deed, sometimes as much as 3% to 5% higher. The lender then gives you what’s called a blended rate, combining the interest on the first trust deed and the interest on the second trust deed.

Typically, this type of 100% financing is fixed for 2 to 7 years and many include prepayment penalties. Some lenders also require an impound or escrow account to pay property taxes and home owner’s insurance in your monthly payment. There will be an initial deposit prior to closing to establish your tax and insurance account so that when these bills are due, there is enough in the impound account to pay these bills.

This loan program will help you purchase a home with no money down.

If your loan comes with a prepayment penalty, when the period is over, you are free to refinance the two loans into one, fixed for 30 years, if you so desire.

A really good aspect of 80/20 type financing; there is no mortgage insurance premium to pay each month, which will keep your monthly payment lower. This premium is typically based on .50% of the loan amount divided by 12. (example; loan amount of $250,000, monthly mortgage insurance premium would be approximately $104.17) There is also an upfront premium to pay in your closing costs. Some lenders will add this to your 1st trust deed loan amount.
In order to have no mortgage insurance the first trust deed must be at 80% or lower.

There is also a single 100% loan available.
If you have necessary credit and debt requirements, it is possible to obtain a 100% first trust deed. Each lender who gives this type of financing has their requirements.
You will be making a single monthly payment based on your entire purchase price.
This type of loan will include the monthly mortgage insurance payment added into your monthly payment as the loan is over 80% of the purchase price.

To recap, 100% financing means that you are financing the whole purchase price of the home you are buying. You are putting no money down. Under typical circumstances the financing is 80% first trust deed and a 20% second trust deed.

Because you are financing the whole purchase price, interest rates may be higher than a typical 30 year fixed rate loan, but you are putting no money down. The lender is taking a higher risk so interest rates are probably going to be higher.

If you don’t have the necessary funds to put down on a home purchase, 100% financing can be the best way to purchase your home.

Patti Schopper has been in the real estate industry over 36 years. Her goal is always to put the client first. Communication is top of the list. When you work with Patti you will know every step of the way what is happening with your

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The Challenges of Wholesaling Owner Financed Properties

Investors wholesaling homes have been prompted to search for owner financing deals from the beginning, but while potentially highly profitable, can also come with their own unique sets of challenges and dangers, especially in the current housing market.

Wholesaling seller financed homes, lease options, rent-to-own deals and properties with owner carry back mortgages or other types of assumable financing can open many doors for real estate investors. Owner financing means not having to obtain new bank financing to make acquisitions or flip houses, and even if simply flipping real estate contracts can make the resale side far easier.

Today these deals can be incredibly valuable and attractive to new wholesalers getting started with limited resources and little or no cash of their own or credit. Similarly they can also help veteran investors to take full advantage of current market conditions and ramp up their volume to make even more money.

These strategies have come around full circle to being very popular again due to tight mortgage credit and the roller coaster ride home values have been on over the last seven years. However, while seller financing deals may appear to be a dream come true and offer the ability to turn around homes faster and easier with little to no money down there are potential kinks that can trip up investors causing them to lose money and time, and see their reputations bruised if they aren’t aware of them.

So what’s wrong with wholesaling lease options or homes with seller financing?

Many see these as being zero risk deals as little or no new money is injected and normally nothing reflects on personal credit. However, there are two main threats in the current market that real estate wholesalers should be aware of.

1. Ability to Resell

Whether wholesaling lease options or owner financed contracts investors need to complete thorough due diligence to ensure that properties can be flipped, and on the terms promised. Today the marketplace is ridden with underwater homes and properties with a large variety of liens on them. This can prevent resale or refinancing, or at least soak up so much equity that it isn’t feasible or profitable. So make sure you know exactly what issues may affect title prior to signing.

2. Ability to Refinance

Many of those wholesaling lease options or properties with seller held private mortgages don’t give a second thought to the ability of end buyers to refinance down the road. They are in, out and paid well before then. However, if end renters or buyers aren’t on a plan to fix their credit and are carefully documenting their payments they could find it impossible to refinance into a long term loan before a private mortgage balloons or lease option expires.

This may not immediately and directly affect your own wallet, but it can affect long term performance. The more you do to educate and help both sides make it a smooth, profitable transaction, even when you are out of it the more they will share you and send you referrals.

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