Whenver I discuss creative financing there always seems to be some eyebrows being raised. Creative financing is NOT where you acquire a third party in a transaction to qualify for a mortgage with the lending institution under false pretenses. It is highly illegal and fraudulent and the third party obviously willingly does this for the remuneration he/she will receive once the deal goes through. This type of deal is done by agents and mortgage brokers who are so desperate for a deal that they would jeopardize they're own merit and credibility with not only the banks and lawyers but with they're industry colleagues as well. Now this type of transaction can be done in the sense that if my clients were unable to qualify but had relatives in good standing with the CCRA and were willing to help in the home purchase. Getting written consent and being honest and upfront from the lenders, would make this transaction go smoothly. But when I say CREATIVE FINANCING, I'm speaking about seller financed properties. The seller creates a middle man inbetween the buyers and the lending institution. You're thinking, why would a seller do this? And what kind of buyer would be willing to get involved. You'd be surprised that these types of deals happen everyday. In a down and out market it's a terrific way to sell.
Buyers: A seller financed property is a courtesy to buyer's who cannot qualify. If you can imagine a family with a good amount of down payment and good employment history but for one reason or another cannot get through the strict mortgage rules of today. Maybe they were into some credit card trouble in the past or are self employed and show less earnings than what they have for tax purposes. A seller financed property which requires "no qualifying" is a great benefit to them. Once they come to terms with the seller on overall asking price, downpayment , monthly payments and interest rate as these are all commonly negotiable with seller financed properties. And a good realtor and lawyer can have the paperwork done so that they're rights are well protected. It would be the same as a mortgage term.
Sellers: Now finding a seller is a little bit trickier, because sellers' do have more to lose if they don't know what they're doing. Another area in which having an experienced real estate agent can be a huge benefit. The sellers' credit is still on the line with the bank that holds the mortgage. They are simply just the middle man inbetween the bank and the prospective buyers. A seller that is holding a vacant property or facing foreclosure would definitely be interested in seller financing. or builders with large inventory over a downspell in the market also entertain seller financing to get properties moving. I see it done everyday by average homeowners who have already moved out or seasoned investors who charge high interest rates to prospective buyers who cannot qualify. I however believe that a middle ground can always be reached. The key for the sellers' is to get as much downpayment as possible and be flexible with amount you're asking on a monthly basis. As long as you're cost with the bank is covered, it should be sufficient. Remember that the downpayment goes directly to the seller once the deal closes and is subject to forefit if the buyer does not continually keep making they're payments through the agreed upon terms.
I did a deal just recently in Calgary, where I sold a home for 550,000 using creative financing. Now the buyer had a good downpayment but also wanted low interest rates to keep his monthly payments down. The way we pulled it off was by both parties agreeing on what was in they're best interest anyway. The buyer put down 75,000 which is a hefty sum and we agreed to a 4% interest rate with 30 yr ammortization. The monthly payments were only $2260, I know that is still a decent amount but not for a mortgage of 475,000. In the end my buyer has a place to call home and a very nice one and my seller has the peace of mind of 75,000 directly to them that would be forefit if the buyer discontinues payments at any point during the term.
It's a great way to sell or buy for even the most discerning client.
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