HOME LOAN? YOU CAN. by John Adams, for Fox5 GOOD DAY ATLANTA

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1 SPECIAL REPORT: TURNED DOWN FOR HOME LOAN? YOU CAN STILL BUY A HOUSE! by John Adams, for Fox5 GOOD DAY ATLANTA If you are renting and happy, then this column is not for you. But if you ve tried to buy a home and been turned down by the bank, there still may be hope. And with historically low interest rates, now is a great time to look at alternative financing techniques. Applicants are turned down for traditional loans for many reasons. Most often, it s a problem with your credit score. If your middle score

2 from the three major reporting agencies is below 620, it will be difficult for you to obtain approval for a traditional home loan. If your credit score is the problem, I recommend that you begin working on it right away. Visit MyFICO.com for lots of good information on how credit scoring works and what you can do to improve your score. Fortunately, there are other alternatives, even if you have a rotten credit score today. I m talking about the world of Creative Financing, and we will look at part of that world in this report. Remember that ownership is not right for everyone. There are many responsibilities and obligations that go along with owning a home. But if you are sure you wish to take on those challenges, then read on! Here are some questions I am often asked by would be buyers: Q: About a third of American households rent their home instead of owning. Yet most renters say they hope to one day become owners. What s stopping them? A: For most of us, owning a home is the best investment we will ever make. It s STILL the primary means of wealth accumulation for most Americans over their lifetimes. But it s become MUCH HARDER to buy a house. Prior to the Great Recession, it was easy to get a loan. In many cases, no down payment was required, no job was required, no proof of income was

3 required. ANd as a result of this loose lending, lots of home loans went bad, and foreclosures exploded. As a result, federal agencies such as Fannie Mae and FHA reacted by changing the rules. Income requirements are now in place, and are much higher, down payment requirements have increased, and Credit Score requirements have been tightened since the Great Recession began in Now it s tougher for ANYONE to get a loan. Q: But you say folks can still buy a house, even if they ve been turned down or can t qualify for a loan today? A: Yes, the solution comes with thinking OUTSIDE THE BOX. You ve just GOT to get BEYOND the idea of a conventional FANNIE MAE or FHA loan, because the requirements are very strict. Q: So, what else is out there? OK, in a nutshell, we have three alternatives for home buyers: A. Loan Assumptions: Most traditional home loans can NOT be assumed unless the lender grants permission, but in the case of a short sale or a pre foreclosure, a lender may consider allowing you to take over payments on an existing loan rather than applying for a new loan.

4 This is especially true if you plan to occupy the house as your principal residence. Contact a realtor who specializes in short sales, and ask if they have any properties that might allow a loan assumption. They may say NO, but if you are persistent, you might find the house you want. In addition, while most home mortgage loans contain a due on sale clause preventing a loan from being assumed, that is not necessarily the case for loans between individuals. Your real estate professional and your attorney will make sure any existing loan can be assumed. Regarding DUE ON SALE clauses, I do not recommend that individual buyers purchase homes subject to existing traditional mortgages. Yes, I know that lots of people do it, and yes, I understand that it is not illegal to do so, but if your purchase triggers the DUE ON SALE clause, then the lender has the right to call the note due and begin foreclosure proceedings. If you want to know more about how to buy houses SUBJECT TO existing loans, I strongly recommend you talk with a knowledgeable real estate attorney. It is NOT a transaction for a first time buyer or for anyone who lacks a complete understanding of the possible consequences. B. Owner Financing As a result of the recession, many owners have been unable to maintain their homes in good condition. When a house falls into even slight disrepair, it is almost impossible to sell. So we find a fair number of owners who are stuck. And some of these owners own their homes free and clear of any loan.

5 They can t afford even the property taxes or insurance due to job loss or whatever, and they can t sell because the house is not in perfect condition. So what can they do? They offer the house for rent. Many owners of rental properties truly WANT to sell their real estate, but have given up for whatever reason, and decided to rent. If you can find a rental home in an area you want to live in, there is an odds on chance that the owner might want to sell, and will sell to you with some form of OWNER FINANCING. Remember, from the sellers perspective, selling to you on OWNER FINANCING may be more desirable than renting, because the seller is relieved of all REPAIR burdens. In addition, the seller gets a guaranteed return on his investment. If you don t pay, he can foreclose and take the house back. (Note to reader: make sure this doesn t happen.) And finally, If you plan on buying a house with owner financing, make sure you have a real estate attorney represent YOU, not the seller in the transaction. Only your attorney can give you advice on how to protect yourself in such a transaction. C. Lease with Option to Purchase Plans Under a Lease Option, you get to rent now, typically for up to three years, and so long as you buy within a set period of time, a portion of the rent you pay may apply toward your purchase price.

6 In other words, for a specific period of time, you are granted an opportunity to purchase, but you have no obligation to do so unless you choose to do so. This type of arrangement can be especially advantageous to renters, because it allows time for your income to grow and your credit to improve. In addition, depending on the terms of the agreement, you may be able to build enough credit from on time rental payments to cover your downpayment on a traditional mortgage. The total flexibility of the lease option is also its greatest challenge, as there is no such thing as a typical lease option agreement. Almost anything that can be agreed upon between the seller and the renter buyer can be a part of the deal. For that reason, it is vital that both parties have a clear understanding of their responsibilities under such an arrangement. The LEASE OPTION is a more complex form of buying, and I always recommend that the renter buyer use an attorney to help them structure their lease agreement. There are many variables to cover, and you are best served by using your own lawyer to represent you. Because these 3 forms of creative purchasing are each a little more complex than the average purchase, I once again caution you to follow the advice of your attorney. ### Atlanta native John Adams is a veteran real estate broker, investor,

7 and author. He answers real estate questions every Sunday at 3 pm on WGKA am(920). He welcomes your comments and questions at Money99.com, where you will find more real estate related informational materials.