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Lease/Purchase Agreements
Borrowers can lock in the price of a house today and
postpone financing for 12 to 18 months with these
agreements. The borrower gives the seller a deposit
which is applied to the purchase and makes monthly
rental payments. Lease/purchase agreements are used by
sellers who want to keep a home occupied and receive
rental money after they've moved out, and by buyers who
are not in a position to commit to a property at a
particular time. |
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Second Mortgages
These are used when a borrower needs additional
financing to buy a home. This mortgage may be financed
by the seller, another lender, relative or investor, and
terms are negotiated between buyer and lender. Often,
second mortgages are used when a borrower assumes a
guaranteed first mortgage with a lower interest rate and
needs to make up the difference between the loan and the
sale price. |
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Installment Contract
Buyers and sellers work out a contract which states a
down payment, interest rate and term. Some contracts
have long terms; others are short-term with balloon
payments. Regulations about title transfer in a contract
sale vary from state to state. |
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Equity Financing
An equity plan allows buyers to buy new homes by
borrowing against a portion of the equity in their
present home. A six-month "bridge" is secured
on which no monthly payments are required and that money
is used to purchase the new home. When the present home
sells, the loan is paid off with the proceeds of the
sale. If the home doesn't sell within six months, the
owner may renew the loan or choose from other
"back-up" options. |
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First Mortgages From Relatives Or
Others
Sometimes relatives or private
investors will purchase a home outright then offer a
borrower a first mortgage. The terms are worked out to
the mutual satisfaction of both parties.
Note:
The Internal Revenue Service will impute higher rates on
the lender for loans arranged below market rates. |
