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The Money Prof
Sunday, July 1 2012
Little Money? Want to own instead of renting? Read onHave you been renting for awhile and want to get started with the purchase of your own home? It can be difficult if you have little savings or the opposite, have the downpayment, but a low paying job. Yes, it's a challenge for sure, but can be done with some simple planning and patience. Let's begin with the first scenario: low savings but a few years of a decent paying job (s). Do you qualify for special mortgage financing (Are you a veteran? Are you considered to have low income?). Contact the State and get information on special mortgage deals. You may have to find a home in earmarked locations to get the financing. Another strategy would be to seek seller financing. Ask the seller if they would be willing to finance part of the downpayment (taking back a second mortgage behind the bank's first mortgage). Many times if the seller has not been able to sell (for a variety of reasons) and really needs to move, he/she may be willing to work with you. There is always the possibility (less probable than partial financing) is where the owner (seller) is willing to finance the entire sale. Terms can be flexible whereby the seller may amortize the loan over 30 years (to get the monthly payment low) with an intermediate term balloon payment (you would have to find other financing after 3-5 years to pay-off the loan, but by that time, you would have hopefully built up equity in the home, your income will have increased, and bank financing possible). There are also individuals that may be interested in owner financing because they like the idea of getting a monthly income. There are others that for tax purposes would benefit from doing some owner financing (installment loan tax consequences may be favorable to the seller). Of course, the seller would want to make sure you had the capacity to pay. If your credit history is not strong, you may want to find a co-signor.
Scenario two: you have the downpayment, but your income is low. Sometimes it pays to hold two jobs (if you cannot get one that pays well) for a few years before you seek financing. In this situation, buying a multi-unit and living in one of the units, can make sense. The lender will take into consideration the income from the apartments when calculating your debt to income ratios. It will also provide you with extra monthly income. I would also try to pay down any other debt you have (i.e., credit cards) to increase your chances of getting mortgage loans. A solid credit history is extremely important when seeking private or bank financing. Good luck to you.
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