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Property Owners

I suggest you learn every possible way to finance mortgages and use
them so you are never stuck not being able to do a deal because you
don’t have access to funds.
Normally, when you buy a house, you get a new mortgage to buy it. If
the house costs $1 million, you borrow $900,000 and put $100,000
down. Depending on your credit, income, and the collateral or property,
the bank or mortgage company will determine how much it will
lend you. A homeowner’s loan, meaning you are going to live in the
property, is less risky for a lender than a loan for a non-owneroccupied
property or an investor loan. People are less likely to default
on a home loan and risk losing their residence. Of course, there are
hundreds or thousands of loan programs out there. Here are a few that
may be of interest to you:

■ There are many 100 percent homeowner loans for people with good
credit.
■ For first-time home buyers, there are special city, state, and national
programs that don’t require borrowers to have much of a down payment,
even if their credit is less than perfect: They may need only
$500, $1,000, $3,000, sometimes $0 down.
■ Home buyers with marginal credit who are going to live in a house
can sometimes get a 70 to 80 percent loan to value. That is, if they
find a house worth $100,000 for $80,000, they might be able to get
a loan for the entire $80,000, or 80 percent loan to value. Some
lenders might require them to put in some of their own cash as a
down payment.
■ Home buyers with bad credit can often get loans that are 65 to 75
percent loan to value.
■ Real estate investors or nonowner occupants can often get loans on
single-family homes, duplexes, or buildings with up to four units at
90 to 100 percent of their value. They must have excellent credit
and good verifiable income.
■ Many investors who are self-employed can get 70 to 80 percent
loan to value if their credit is good.
If you negotiate a good deal on a property, you might be able to borrow
the entire amount. If the house is worth $100,000 and you can buy it
for $75,000, you may be able to get a 75 percent loan to value and borrow
the entire amount. However, many lenders want to see you put
your own money into the deal.
You can also suggest that the owner take out a second mortgage. Say,
for example, that the only loan you can get is a 60 percent loan to Using a Second Mortgage to Get In with $0 Down
Value or worth = $100,000
Seller wants sale price = $75,000
Bank will lend only 60 percent = $60,000 first mortgage
Seller takes a second mortgage = $15,000 for five years
$60,000 + $15,000 = $75,000 total
Buy On Owner’s Terms
Many savvy real estate investors and some knowledgeable homeowners
know there is another source of funds for all of their real estate needs.
Instead of going to a bank or mortgage company to borrow the money to
buy a property, they go to the seller or owner of the property. That’s right,
the seller can act as your banker.
If you find a motivated seller who wants $100,000 for the property, you
could borrow the $100,000 from a bank or just get it from the seller. If the
property is free and clear (i.e., no liens on it), the seller can give you a new
mortgage for $100,000, just as the bank would. Instead of paying the bank
mortgage payments every month, you pay the seller. It’s called buying real
estate on owner’s terms.
value because your credit isn’t good. The seller wants $75,000 on the
house worth $100,000. The bank will lend you only 60 percent of that
amount, or $60,000. You could negotiate for the seller to take the
$60,000 and sign a second mortgage behind the bank’s first mortgage
for $15,000—not in cash, but in a note signed by you. This is another
way to borrow the funds without using your own money to buy a
property.