REAL ESTATE FINANCING OPTIONS
After nearly two years of steep declines in the housing market in the US and the Bahamas there are small signs that the housing market may be close to finding a bottom. And when you get near the bottom that means that the sluggish real estate market will begin to rebound. We have a very unique situation on Grand Bahama because the list prices or advertised sale prices have not changed that much in the last 2 years but the actual sales transaction numbers have. What this means is that the sellers still think that their properties have not gone down in value but when it comes time to really make a deal the sellers accept less for their property to reflect actual market value. No matter what anyone says, Grand Bahama prices have come down and that is based on actual list price to selling prices data.
I think the international and local numbers are showing that we may be seeing a bottom which means that this is a good time to buy as the market will begin very slowly to improve. So if you do decide to buy you of course have to figure out how to finance your purchase. Since real estate is usually the largest single purchase you will ever make you need to explore every option available to borrow funds to pay for this large purchase. I suggest that you meet with several banks right away to determine how much they will lend you based on your income, determine what is the interest rate they will charge, how much do you have to put down as a deposit and how long of a mortgage can they offer.
The banks have money to lend and if you have a steady job they will finance your purchase. Be prepared to give the banks a lot of information but with a little patience you can borrow funds and get in the real estate game and finance your dream property. One of the financing options other than a borrowing from a bank is seller financing where the seller in essence acts as the bank. Let’s take a look at how this works.
A seller can finance the entire purchase transaction if they own the home free and clear. Why would a seller choose to do this? Typically it is because the buyer has difficulty qualifying for a conventional mortgage loan. Often the seller in this situation has personal reasons to sell the home to a particular buyer, or is in a hurry to complete the transaction. Sellers who agree to finance can often get a higher price for the property and sellers who carry a loan earn a return on their investment in the form of interest. The interest rate on an owner-carried loan is negotiable.
Seller financing differs from a traditional loan because the seller does not give the buyer cash to purchase the home, as if the seller were a bank issuing a mortgage loan. Instead, the seller extends a credit against the purchase price of the home. Typically, the purchaser pays a deposit and works out a monthly payment schedule for a set number of years that includes principle and interest with standard monthly amortization schedules based on the interest agreed. You can find these schedules on the internet. Everything is negotiable and if the two parties are willing (buyer and seller) terms can be worked out that make sense for all concerned.
The lawyer will prepare the necessary paperwork after the terms of the sale are worked out between the buyer and seller. The buyer executes a promissory note or enters into an Agreement to Deed and the title deeds are held by the seller until the house is paid off so the seller is not at risk. If the purchaser can not make the monthly payments the seller keeps all the money paid and takes back the house.
Sellers who decide to finance the sale of their own home are taking a risk that the purchaser will default but it could be a win win for both parties. If you choose this option, you are accepting greater responsibility for the transaction, and should rely strongly on the expertise of your lawyer and your real estate agent. It may not be the ideal option for everyone but it may be right for you !
If you are seller who is going to use this self-finance option, you should proceed with seller financing only if you are confident that the buyer will live up to their end of the deal. Until next week.
