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How to Buy a House Without Using a Bank

May 30, 2012 by  
Filed under Blogs, Real Estate

by Neal Frankle

buy a house with bad creditAs you probably already know, it can be almost impossible to obtain a bank mortgage with bad credit.  If you otherwise can’t get a loan because you have a troubled credit history, one alternative to a traditional bank mortgage is to obtain one from the seller.  Seller financing has its benefits, as well as its risks. You also need to know how to find the right seller to meet your needs.

Why sellers might consider financing a mortgage

These days, real estate prices have dropped yet property owners are still having a hard time selling homes. That means more owners are desperate to sell.  As a result, more sellers may entertain using this unconventional approach.

Interest rates are also low. This can make seller financing more attractive to property owners, especially those who aren’t reinvesting in more real estate but are looking for income-producing investments. Banks offer investors less than 2% interest.  If you come along and offer 4%, that could be engaging for the right seller.

The benefits of seller financing

First, if you have some financial challenges in your history and need to build your credit score, conventional lenders may not be willing to give you a loan.  If that’s the case, this may be the only alternative you have to take advantage of the current low real estate prices.

Second, when you get a loan directly from your seller, you save all kinds of fees. These purchases are typically made directly. That means you save on real estate commissions on top of all the loan fees and points you keep. Compared to a conventional purchase, you could be saving tens of thousands of dollars when you consider all the commissions, points and fees.

On top of that, you could possibly arrange a much lower interest rate.  For example, if you have impaired credit, you might get a loan from a bank but it might be very expensive. On the other hand, a seller might be persuaded to view your credit history differently and extend a lower rate as a result.

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How to find the right seller

To be sure, most people who sell real estate are not in a position to back your loan. And even those who are may need to be persuaded. But you only need to find one seller who is willing.

You are looking for people who are downsizing and those with a ton of equity or better yet, no mortgage at all. Get the word out to friends and family. Spread a wide net. Use your social circles and social media such as Twitter and Facebook to get the word out.  Search ads in Craigslist and actually place an ad there and in your local paper.  Don’t give up and don’t stop there. Let people in your church, synagogue, or other communities know what you are looking for and ask them to keep their eyes open.

You can even approach real estate agents and brokers.  Let them know what you are interested in doing.  Speak to many brokers and follow up with them.  Ask friends if they know good real estate professionals who either specialize in this or who are seasoned veterans.  Realtors who have been active for many years have the greatest chance of knowing clients who might be the perfect match for you.

How to convince a seller to do business with you

As I said, most sellers will be hesitant to carry your loan.  That’s because they don’t want to have to foreclose should you be unable to make your payments.  And they think you are a greater risk since they know banks won’t grant you a loan.

Your job is to help them overcome their fears.  You do this by coming into the deal with a very large down payment. Also, prepare a “resume” of sorts that shows them how stable your income is. Be upfront about credit blemishes and explain what you’ve done to correct your mistakes.

As a last resort, get another person to co-sign the loan. This is certainly far from ideal and it may be difficult. But like finding a seller to finance, remember, you only need to find one person to co-sign in order to make this happen.

Buying a home using seller financing is not without risk. If a bank feels it’s better off not making a loan to you, they might know something you don’t.  If you take on a debt that you can’t afford, you’ll end up losing the property, your down payment and your good credit score.

Make sure if you go this route you are sure you know how much house you can afford — then buy a home that is a bit cheaper than that.

Buying a house and having the seller carry your mortgage can be a great way to take advantage of today’s low real estate prices and interest rates. It’s not easy to pull off but it’s well worth it if you have no alternative.  And, while difficult, it’s far from impossible if you follow the steps outlined above.

Source: Credit.com (http://s.tt/1cZAW)

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10 Comments on "How to Buy a House Without Using a Bank"

  1. howbuyahouse.com on Thu, 7th Jun 2012 8:34 AM 

    Getting a house without a loan will save lot of money, as you
    said in prepayment of loan, down-payment and lot. It is always
    preferable if you buy home directly without involving bank if
    you have that much of money with you.

  2. Marianasliving on Tue, 19th Jun 2012 8:14 AM 

    Buying a house without using bank would be great! Less stress,
    less payment and free from debt. No debt is happiness.

  3. Pham on Sun, 26th Aug 2012 7:19 PM 

    The entire banking system is useless when it comes to
    buying a house. The money you borrow doesn’t really
    even exist, why would you have to pay interest on it?

  4. Delores on Fri, 12th Oct 2012 3:27 AM 

    I like the valuable information you provide in your articles.
    I’ll bookmark your blog and check again here regularly.

  5. Isabelle on Sun, 14th Oct 2012 10:33 PM 

    Interesting, I guess living in the US you allways
    assume that you need to go through a bank to get a
    home. It’s nice to know that theres an alternative
    option out there.

  6. Randolph on Mon, 15th Oct 2012 9:26 PM 

    Nice post

  7. Fred Morrison on Wed, 17th Oct 2012 4:11 PM 

    Wow, marvelous blog, just stumble onto it from google.

  8. Clouplere on Mon, 29th Oct 2012 10:38 AM 

    Seller financing has always been the best way to go in my eyes.

  9. Daw on Wed, 31st Oct 2012 8:49 PM 

    If we had the cash to buy a home, we’d all have good credit.

  10. Rickster on Fri, 2nd Nov 2012 12:51 PM 

    Having money doesn’t always equal good credit Daw,
    I know plenty of people making good money who have terrible credit.

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