Use a Creative Loan to Buy a Boca Raton Home

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In today’s real estate market, it may be getting harder to get a mortgage loan for a home in Boca Raton. However, if you’re willing to think out of the checked boxes on the standard loan forms, you may find yourself the proud owner of a new Boca Raton home.

Mortgage Banker,  Preston Ware  over at says that today’s typical first time Boca Raton home buyer usually asks about FHA loans about 40% of the time which is more than any loan option. These are the mortgages that require a minimum of 3.5% down —  as opposed to down payments of 10-20%, which are typical of conventional loans. Of course, you’ll be paying PMI (private mortgage insurance) if you put down less than 20% on any loan for your Boca home.  Private Mortgage Insurance Guide

Second Home and Investment Properties

However, if you’re looking for a second home in Boca Raton or for investment property anywhere in South Florida, then an FHA loan is not an option because FHA is all about owner occupied properties. If you’re financially qualified, you will either pay cash or apply for a conventional loan and make that 20% – 30%  minimum down payment. If you be able to put this down you will avoid the PMI.

Private Mortgages –when FHA is not an option

For very many current buyers of homes in Boca Raton, those who don’t have  the financial resume that banks are looking for today, creativity will become a necessity. The first place to look is within the ranks of relatives or friends. If that is not an option, consider private mortgage companies. These companies can be found on the Internet, or may come to you via your mortgage broker, or through people you know.

Buyer Beware: Mortgage rates may be higher and repayment time will be shorter.

The private bank will look at you, your work history, your finances, and, of course, the Boca Raton property that you want to purchase. The term of the loan you receive may surprise you – for example, your interest rate will be higher by at least 3-4 points than today’s bank rates, and you will probably have to pay 3-5 points up front.  In addition, while the interest rate will be based on a 30 year amortization, the loan will probably have a call of 3-5 years.

That means you will have to refinance the loan with a standard mortgage within that 3-5 period of time, so you want to have an idea of whether or not your credit score is likely to alleviate within that time period. Otherwise, you will have to either sell your house in Boca Raton or plan on a renegotiation with the private lender at the end of the loan period.

Plan for closing costs before  the closing.  Or, work with the seller on closing costs

In today’s difficult banking climate, many people are able to get a mortgage that covers the agreed upon selling price of their Boca Raton house.  But many Boca Raton buyers don’t realize that after the down payment, there are still costs of between 4% and 7% that have to be paid at closing to cover taxes, fees, etc. 

Today, the appraisal that comes in may just cover that selling cost of the Boca home, but the bank will not agree to add closing costs on to the loan. That means you must have money for closing costs available in your bank account before you close; otherwise, you will you need a plan in place so you will have that money available at closing. Without those funds, you cannot close and you will lose your initial deposit.  So make sure you take care of providing money for closing costs beforehand.

One way to do this is to ask the person selling a home in Boca Raton to agree to refund these costs at closing, but to agree to include them in the purchase price However, you will only be able to get this kind of help from an owner whose property is in good physical and good financial shape, and who is willing to discount his or her home at least 7% below actual market value. For this to occur, the Boca Raton home owner must be current in his or her bank payments and may not be in foreclosure or short sale.

Bad credit?  Think about lease-purchase.

If you have enough cash to put a 20% – 30% down payment on a Boca Raton home, but your credit is in need of repair (and you’ve already started down that credit repair route) then a lease-purchase deal may be the best route for you to buy a home.  Lease-purchases typically involve a non-refundable up-front deposit to the owner, and then a term of rental from 1-3 years. 

At the end that time you agree to purchase the home in Boca Raton for an amount you settle on at the time the lease begins. In addition, you typically pay additional rent each month that is put aside to be used toward the down payment when it is time to purchase. This additional rent is also non-refundable.

Boca Raton sellers who own their homes outright, or who have a great deal of equity and don’t have to sell, may like these deals because the up-front deposit tells them the tenants are serious buyers. You might also think of this arrangement as a contract with verrrrrry long closing.

Keep in mind that at the end of the lease term, you will  need to qualify for a mortgage. So you will want to work on healing your credit during that time and put aside sufficient funds for closing costs.

Trade your stuff for a house.

Finally, if you don’t qualify for a mortgage, but you want to purchase some real estate in South Florida, there are finance companies that will lend you money against your assets. (They are similar to pawn shops, but are larger financial entities). For example, let’s say you have a vintage Rolls Royce that you hope to hold onto. But at the moment, you need its cash equivalent in order to purchase a vacation home in Boca Raton or an investment property in South Florida.

The lending company will give you cash and hold your property for a certain amount of time. You will be expected to pay back that cash, with interest, within an agreed upon period. If you do, you will receive your car back, and you can park that Rolls in the driveway. However, if you do not make the payments as agreed, then the car becomes the property of the lender, who may dispose of it as he or she wishes.

The good thing about loans like these is that they do not show up in your credit scores. So if you later wish to refinance that Boca Raton house, or purchase another one using a standard mortgage, your financial records will not indicate any outstanding mortgage obligations when you apply to a bank for a loan.

Marc Jablon, The Jablon Team
[email protected]
RE/MAX Complete Solutions
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Marc Jablon