Financing Home Purchase

In today’s housing market, with rising interest rates and soaring prices, many aspiring homebuyers may find themselves unable to secure a traditional mortgage. This predicament in home purchase is unsurprising, given the substantial hike in mortgage rates over the past year, surging from approximately 3.25 percent for a 30-year fixed mortgage in December 2021 to around 6.62 percent in December 2022.

Fortunately, for those facing difficulties in qualifying for a conventional mortgage or simply exploring alternative options, there exist creative and unconventional financing methods. According to a 2022 survey conducted by Pew Charitable Trusts, around 1 in 5 U.S. home borrowers, equivalent to roughly 36 million Americans, have turned to alternative financing approaches.

Here, we present six inventive alternatives to traditional mortgages that eager homebuyers should consider—though it’s crucial to be mindful of potential risks associated with some of these methods.

How To Finance Your Home Purchase

Down payment assistance programs

Participating in state or local down payment assistance programs doesn’t replace the need for a traditional mortgage, but it offers a low-risk means of obtaining essential financial support. Each program sets specific eligibility criteria, often targeting first-time homebuyers and individuals intending to use the home as their primary residence.

These assistance programs can include government grants that do not require repayment. They can also offer zero or low interest loans, forgivable loans, or deferred-payment loans.

Government-backed programs

Government-backed mortgage programs are low-risk and frequently come with minimal or no down payment requirements:

VA loans: Accessible to active-duty military members, veterans, and certain military spouses, VA loans are guaranteed by the U.S. Department of Veterans Affairs. Most of these loans require no down payment at all and impose low or no minimum credit score requirements.

FHA loans: Backed by the Federal Housing Administration, FHA loans feature lower down payment and credit score requirements compared to conventional loans, making them popular among first-time buyers. However, they do necessitate the purchase of FHA mortgage insurance.

USDA loans: Buyers in rural areas may qualify for USDA loans, established by the USDA to promote homeownership in non-urban regions. The home should be in a USDA-approved area. These loans require no down payment and usually have more lenient credit requirements than conventional mortgages.

Balloon and piggyback loans

While both balloon and piggyback loans come with notable drawbacks, they can serve specific purposes. A balloon mortgage gets its name from its relatively short term with low or even no monthly payments, followed by a substantial lump-sum payment at the end, known as a balloon payment.

These loans are not very common because they carry risks for both borrowers and lenders. Initial years may provide a false sense of security, but you must ensure you can afford the full balloon payment later. House flippers sometimes favor these loans because they can use the proceeds from selling the house to cover the balloon payment.

A piggyback loan, while less risky, has its own disadvantages. As the name suggests, it comprises two mortgage loans, one layered on top of the other. This results in two different interest rates, two monthly payments, and two sets of closing costs.

Often referred to as 80/10/10 loans, they provide one loan for 80 percent of the purchase price and another for 10 percent, with the remaining 10 percent paid upfront as the down payment. The benefit is that it can eliminate the need for private mortgage insurance or a jumbo loan.

Rent-to-own

Also known as a lease-to-buy program, rent-to-own allows you to rent a home with an option to purchase it later. It’s akin to leasing a car, where you rent the property for now with the possibility of buying it in the future. A pre-arranged contract contains the terms of the purchase, such as the price.

A portion of your rent payments may be applied toward the purchase price if you decide to proceed with a home purchase. This arrangement can be beneficial if you’re working toward homeownership but aren’t ready to buy yet. However, property value fluctuations or financial constraints at the end of the rental term can pose challenges.

Seller financing

In rare cases, a buyer might secure financing directly from the home’s seller, particularly if the seller owns the home free and clear. Seller financing resembles a traditional mortgage, but instead of a bank lending you money, the seller lends it directly, assuming the debt.

This may help buyers who wouldn’t otherwise qualify for financing for a home purchase. In some instances, buyers may obtain a mortgage for part of the purchase price and finance the rest through the seller. However, seller financing often involves higher interest rates than standard mortgages and may require a balloon payment.

Borrowing from a retirement account

When you’re in a tight spot for a home purchase, you might consider borrowing from a retirement account to fund your home purchase. However, this step carries risks. Borrowing from a 401(k) is generally discouraged. There are likely restrictions on the amount you can withdraw, and doing so could result in penalties and taxes.

Even though you’re borrowing your own money, you’ll have to repay it with interest. Additionally, remember that your 401(k) is tied to your job. If you leave your current job, you may need to repay the money more quickly than anticipated. You also cannot borrow from a 401(k) at a company you no longer work for unless you’ve rolled it over into a different account.

If you currently unqualified for a traditional or conventional mortgage, don’t just give up on your home purchase. There are various nontraditional, alternative methods to finance or assist with financing a home purchase.

However, while some options are secure and government-backed, others come with higher risks. Conduct thorough research to ensure you choose the financing method that suits your specific needs.

Local lenders to check:

Moore & Associates (843) 238-1416
https://mooreandassoc.net/

Waccamaw Insurance (843) 626-3030
https://waccamawinsurance.com/

Bradham Insurance Agency (843) 488-2886
https://www.bradhaminsurance.com/

Fogner Insurance Agency (843) 488-9022
https://fognerinsurance.com/

Call Full Potential Real Estate, LLC now if you need the help of a professional real estate agent.

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Full Potential Real Estate, LLC
Myrtle Beach, SC 29577
843-492-4537
http://fullpotentialrealestate.com/

Tips In Negotiating A Home Purchase

When venturing into Myrtle Beach real estate, one of the difficult and tricky processes is the home purchase negotiation. This is where home buyers often feel buyer’s remorse thinking that they paid less or overpaid for the house they purchased. Home buyers may feel this right after negotiating or even after years of living in the house.

As a home buyer, it is important for you to learn how to effectively negotiate the purchase price of the house you are considering buying. This will help you buy the house at a price that will benefit both you and the seller. Plus, it will help prevent you from overpaying for the house.

To be sure you did great at the home purchase negotiation and to ensure that you buy the house at the price that you want, consider the following tips:

Home Purchase Negotiations

It’s okay to lose a house

When looking for a house to buy, buyers often get attached to the house because of its location, design or amenities. And when this happens, buyers find it difficult to let go of the house if the seller rejects their purchase proposal or if they did not agree on the negotiation purchase.

What buyers should always remember is that there are lots of houses for sale in the Myrtle Beach area. If you did not agree with the seller in the negotiation, it’s alright to walk away and move on to the next house on your list. Do not spend any more time negotiating if you think the seller has no plans to negotiate with you. Aside from losing time, you may also lose money because you are sure to end up agreeing with the seller’s price and overpaying for the house. All because you cannot let go of the house as you have become attached to it.

Do your research

Before deciding on a price to offer the seller, spend time with your buyer’s agent researching how similar homes have sold in recent months. For more accurate results, check on houses similar and near to the one you are considering buying that were sold in the past three to six months. You want the most recent data to help you determine the best price to offer to the seller. Chances are that the seller also did the same research to come up with a selling price to negotiate with potential buyers. As a result, it will not be difficult for both of you to come to an agreement.

Set your price range

After looking at the prices that nearby similar homes have sold for in the previous months, set a price range considering the asking price of the house you are considering buying. According to many Myrtle Beach real estate agents, this will effectively prevent you from overpaying for the house and will help you buy the house at a lower price.

Start the Myrtle Beach home purchase negotiation by making your first offer which is the lowest amount that you have set in your price range. If the seller is not too eager to sell the house, he will make a counteroffer that is closer to the asking price. On the other hand, if the seller is looking to sell the house quickly, chances are he will agree to your first or second offer and you end up buying the house at your price.

Set a date when your purchase offer will end

As you make your first offer, it will help your cause if you let the seller know how long your offer will last. This will prompt the seller to consider your offer right then and prevent him from considering offers and proposals from other potential buyers.

Real estate agents in Myrtle Beach highly recommend having the seller give you a response in 1 to 2 days. This will not only start the negotiations quickly and on the right track but will also help you get a better price on the house you are considering buying.

Include other purchase fees when negotiating with the seller

Remember that there are other fees that you will have to pay aside from the purchase price of the house. These include transfer taxes, appraisals, repairs, homeowners’ fees, etc. You can opt to include these when negotiating with the seller to further get a better price on the house.

Aside from splitting the cost with the seller, you can also have the seller pay for the fees that may cause to increase in the purchase price. Otherwise, you can offer to pay for all these fees and have the seller pay you back in cash at the closing.

To further ensure a successful negotiation process, work with a licensed and experienced Myrtle Beach real estate agent. Call Cheryl Woodward today.

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Full Potential Real Estate, LLC
Myrtle Beach, SC 29577
843-236-0203
http://fullpotentialrealestate.com