The eighty-twenty rule, for decades, was the only method to purchase a home. That meant that you would make a twenty percent down payment, and borrow the other eighty percent with a mortgage loan. Certainly, there have been plenty of purchasers who made an even greater percentage down payment, but twenty percent was regarded as the bare minimum. Luckily for you and me, times are different now. Nowadays you can go as low as zero percent down, and in some instances it’s possible to get money back at closing.

At present, there are at the least a dozen or more ways to finance a home purchase, whether only for investment or as a primary residence. One of the most common ways is to take out more than one loan, normally in the manner of a second mortgage loan. A purchaser can put five percent or less into the deal, and effectively borrows the other fifteen percent or more through a separate mortgage, typically, though, at a much higher interest rate than the first mortgage loan.

PMI

While it may seem nice to invest less for the same home, a problem occurs and is not restricted to the increased interest rate on the second mortgage loan. Since the buyer doesn’t meet the normal 20 percent minimum, lenders virtually always require PMI (private mortgage insurance). Charges are ordinarily hefty and may be greater than the additional interest you would pay on a second mortgage. Worst of all is that the additional money going to PMI is NOT tax deductable.

Although it’s possible to have the financial institution take away the pmi requirement after enough payments were made it hardly ever ends up happens. In principle, once the mortgage loan(s) were paid down so that the LTV (loan-to-value ratio) is at eighty percent or less - commonly by a combination of paying down the mortgage and appreciation of the value of the property - the loaner will be willing to look at removing the PMI fees from monthly payments. Frequently, before that can occur, the mortgage loan is refinanced or the house resold. You should remember though that by law, once the original loan balance falls below the eighty percent threshold of the original appraisal amount of the property, PMI should be automatically removed. If it hasn’t been you should contact you lender. If you think that the PMI requirement should be removed mainly based on appreciation in the value of the property and not just because of the payments you have been making, most lenders will require that you get and pay
for a new appraisal. The cost is usually around $500. You should be able to recover this cost in only a few months if the PMI is removed so don’t let the amount scare you off.

Be Ambitious

Ambitious investors are able to uncover even more sources of financing for there purchase. When thinking of buying a home in a new housing project, for example a planned community or new housing tract, the constructions company will, oftentimes, be willing to finance a home loan for early purchasers. Such loans are often available and may require only a five percent down payment of the purchase price.

Subject To

Subject To is a powerful phrase. If properly used it will allow to do almost anything you want with a purchase. If you might need to get out of a contract make sure you have a Subject To clause like “Subject to a satisfactory home inspection.” If you won’t be able to go forward with the purchase, you just say that the home inspection wasn’t satisfactory. You can make a purchase Subject To almost anything as long as the seller agrees to it. A common Subject To deal involves getting a seller deed you the house while leaving the current mortgage in position. You never legally assume the mortgage loan, but simply begin making the payments. As discussed in the next section.

Wraps

A Wrap or a Wrap Around Mortgage is another manner of creative financing. If the home you wish to buy is currently mortgaged, but it doesn’t have an assumable mortgage, you may be able to leave the current mortgage in place and get a second mortgage to cover the difference between your purchase price and the balance of the current mortgage. In essence you wrap the second mortgage around the first. You must convince the seller to sign over the deed to the house to you while he leaves the current mortgage in place. If a seller is distressed, he may go along with it. You never legally assume the original mortgage loan, but simply begin making the payments on it and on the second mortgage. The seller might not go along with it because he is still liable for the original mortgage and it will still be on his credit file. You also must wait to file the deed because if you do file it the original mortgage holder will notice and will want to be repaid in full. After a few months of ownership, you should refin
ance both mortgages or resell the property. There are lots of variants on this method and this is really not suggested for the beginner investor.

And/Or Assigns

For the very surefooted it’s possible to ‘buy’ a home, and then sell it, without ever actually owning it or taking possession - well at least not for a long period of time, usually only minutes. It’s easily possible to purchase a home, sign the contract, and then sell the contract for any price from $500-$5,000 without ever taking ownership or even getting on the title. Profits are commonly a lot less but you will get them faster with little risk, though dealings like these necessitate excellent credit. If you can turn over many of these types of transactions, you’ll soon be on your way to financial independence. To do this you must make sure to put this short but powerful little phrase after your name on any and all contracts you draw up, “and/or assigns.” This phrase is what allows you to easily sell the contract. If you are not sure of your ability to resell the contract, make sure to add a “subject to” clause that will allow you an out.

Limited Partnership

You might finance a home purchase by organizing a limited partnership. You can arrange a limited partnership in a myriad of ways. In most limited partnerships, each partner puts up some equivalent percentage of the price. If there are two partners each may put up fifty percent of the price, three partners thirty three percent and so on. Each partner doesn’t have to put up the same percentage as the others, a partner may put in a larger amount than the others. Profits from the sale of the property will then be allocated in accordance with the original percent invested. On occasion, it’s also plausible for one partner to put down cash, while the other(s) perform services — for example repairs to a ‘fixer-upper’. The possible combinations of partnerships are unlimited.

Government Loan and Grant Programs

If you have served in the military, if you earn a low income, or have many other types of special circumstances, there are several federal and state mortgage loan programs are available. There are also grant programs available. A grant is better than a loan because you will never have to pay it back. Most government programs are ordinarily restricted to individuals planning to live in the home.

Credit Cards

Financing your purchase by means of credit cards is another possibility, but there are various pitfalls to this method. Leaving out the considerably greater interest rates, lenders take a look at all outstanding debt while gauging whether to issue a mortgage loan. Taking out a cash advance to cover a shortage between the needed five to twenty percent down payment will commonly get you refused. If you want to try though, you should wait to the last minute and take the advance as close to the closing date as possible. That way your lender won’t have time to see that your credit card balances of gone up.

Friends, family, and additional sources of savings are most often looked at in a similar way, unless you are able to demonstrate to the bank that the cash is a gift and not merely a loan.

In closing, mortgage lenders have seen it all! Do not even try to deceive them. You won’t succeed and you are just wasting your time.

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