Creative New Ways To Buy A Home

Creative New Ways To Buy A Home

There are several new ideas out there that are being utilitzed taking lead from a down market. It turns out, these creative home-buying techniques aren't particularly new. In fact, homeowners and lenders are just taking cues from past economic downturns. Here are some ideas from "Many of the new mortgage products that are surfacing are retreads," says Anthony Sanders, professor of real estate finance at Arizona State University. "[They're] variations of mortgages that were popular during the high-inflation, high-interest-rate period of the late 1970s and early 1980s."

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Leveraging a stock portfolio or securities-backed mortgage

With mortgage rates at a near 30-year lows, many homebuyers are avoiding banks completely getting below-market rates without credit or income qualification. The catch is that the buyer will hand over his or her stock portfolio to an alternative financial institution for a period of three to 10 years, receiving 80% of its value up front while the lender assumes control of the stocks. After three to 10 years of paying 3% to 5% interest rates, the homeowner gets his or her shares back if they pay off the original loan amount. This article is found at

the two-step mortgage,

A fixed-rate mortgage amortized over 40 years, which switches to an adjustable-rate mortgage after five to 10 years. Forty-year mortgages, in general, offer lower monthly principal payments than the two step, but often carry larger interest rates. Figuring out if it's cheaper to go with a two-step requires some number crunching. the constant amortization mortgage--which reduces principal much faster than a standard mortgage, but carries larger monthly payments at its outset. Both mortgage products--the two-step and the constant amortization--allow buyers flexible ways to manage interest rates and a tight credit market. This article is found at

Securities-backed loans

It's a simple concept: The lending institution gives you 80% of the value of your stock portfolio and then holds onto it for between three and 10 years while charging a 3% to 5% interest rate on the loan. After the initial period, it's up to the borrower to decide if they want their original shares back. The institution and the borrower come out best if the values of the stocks go up. The homeowner's stock portfolio is illiquid during the loan period. This article is found at

Shared-ownership houses

An emerging technique with vacation homes, shared ownership buys are where multiple people form a cooperative on a single home, or group of homes. In vacation-home area, some listings include the possibility of shared ownership in listings. Depending on the terms of the deal, owners can exercise buyout options to own the entire property cooperative. This article is found at

Constant amortization mortgage

Most consumers like lower payments up front, which makes the constant amortization mortgage unattractive to some. Because the mortgage is constantly amortizing, principal is reduced at a much faster rate than with a standard mortgage. For this privilege, however, borrowers start with a higher payment, which diminishes over time. This article is found at

Family loans

Some families are stingier than the cash-strapped retail banks, but those with equity to borrow against and a little trust can work out a low-cost alternative. Either with cash, or leveraging a home-equity line of credit or reverse mortgage against an existing asset like the family home, parents can lend their children money for the purchase of a house. Families must fill out mortgage repayment plans, and the lender must charge the borrower a rate of interest--otherwise the IRS will consider it a gift and tax the loan heavily. This article is found at

Federal Housing Administration loans

In a marketplace where most lenders want anywhere from 10% to 25% down, FHA loans are available for just 3.5% down. Borrowers must meet certain terms, however: Loan payments may not exceed 31% of income, and buyers must be purchasing their first home--or first home in two years. Additionally, buyers must not have been foreclosed upon in the last three years. This article is found at

Assuming a mortgage

This is tricky business and can result in disaster for the unprepared. When you buy a property that's fully gone through foreclosure, the bank's repossession of that property washes away all outstanding liens. If a buyer purchases a house in pre-foreclosure, they're also assuming all outstanding liens against the property. If a savvy homebuyer can get the bank to offer a sharp enough discount on assuming the mortgage, it's possible to work out a good deal. However, mistakenly assess the amount of money owed on the property, and the pre-foreclosure buyer can wind up in the same predicament as the seller. This article is found at

Automatic principle reduction mortgages

Not yet available, but something to look out for, an automatic principle reduction mortgage is designed to reduce foreclosures by adjusting principle to the home value if prices decline. The idea is that fewer people would end up owing more on their home than it's worth, and that it would encourage home buying. Banks, however, are unlikely to offer this product without significant government incentives. Some principal reduction has occurred in individual negotiations between distressed borrowers and lenders, but it's not currently an active product. This article is found at

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