The process of buying a home can be a long, complicated, and overwhelming one, whether you are buying a house for the first time or not. You need to familiarize yourself with related lingo or terminologies often used in real estate. It will also be to your benefit if you gain more knowledge about how to apply and get a home loan, even before you begin to look at houses that are for sale. The information below will hopefully augment your knowledge about home loans and home buying proceedings.
1LTV And TLTV Ratios
In real estate financing, the LTV or Loan-To-Value ratio is often used, and it needs to be calculated, and you must also understand its implications. The LTV ratio compares the property value and the total loan. Let's say that there is a loan of $150,000 on a property that is valued at $200,000, which illustrates that this property has a 75% LTV.
Real estate experts also use the term TLTV, which stands for Total-Loan-To-Value ratio. This pertains to additional debts, such as second or even third mortgages, which have been secured by a particular property. To illustrate, let's say that a property has a fair market value of $300,000, but the property also has two mortgages wherein one is worth $200,000 and the second is $25,000.
2Computing TLTV Ratio
TLTV should be 75%. This is computed by adding the values of the two mortgages and then dividing the total by the property's worth. A loan is more suitable if the TLTV ratio is lower than 75%, and the property may have higher equity. In some rare cases, it is even possible to buy a rental property with no or zero down payment.
It's possible that the seller won't ask you for a down payment too. Perhaps you could even come up with an agreement, wherein you'll only need to pay installments that start on a later date. The seller can agree to certain conditions, such as this presented by the buyer as long as the former is not in dire need of cash, and if the property is not mortgaged. When selling, homeowners typically ask for a down payment. Nevertheless, this does not necessarily mean that you cannot purchase a property without putting in a down payment.
3Payment Options Aside From Installment
In case the seller does not agree to an installment plan, then you can approach a lender to borrow some cash for this purpose. Some money lenders may even allow you to obtain two loans. You can get a first mortgage whose amount is equal to 80% of the purchase price, and a second mortgage that you can use to pay the rest. In general, the second mortgage has more risk on the part of the lender, which is why it will likely have a higher interest rate.
You should also consider government programs, as some offer 100% financing on the condition that the landlord must also be living in the property. To illustrate, you could get that sort of financing if you purchase a property with four units and move in one of those units. So, yes, you can buy real estate without paying a down payment. This is acceptable, and it's both ethical and legal too.
4Government Programs For Property Buyers
The federal government has two programs that offer 100% financing for real estate buyers. One is the Veterans Administration, which can provide 100% financing for veterans who want to buy properties. The U.S. Department of Agriculture also offers a hundred percent financing via the rural housing program. Some private lenders also provide 100% financing. Others are zero down payment loans that you can get through several mortgage lenders, but, more often than not, 100% financing is only given to applicants with outstanding credit.
5100% Financing Is Possible
Some lenders provide 80% financing through a first mortgage, and the rest of the 20% is given via a second mortgage; all in all, this can be considered as 100% financing. One hundred percent financing in real estate is possible, and it is legal as well. Several lenders will assist you in achieving this if your goal is to purchase your dream home. But if you do not live or plan to live in the house that you wish to buy, it's known as a non-owner-occupied property. In such cases, it is more difficult to get 100% financing.
6Getting A HUD Loan
In case it is your goal to become a landlord, perhaps you should look into loan types offered by the U.S. Department of Housing and Urban Development or HUD. Though there aren't specified programs that provide financial assistance to existing landlords or those who wish to become landlords, you will still likely find something that could ease your financial burden. Admittedly, U.S. government programs can be quite complicated, but they do offer financing plans to those who wish to buy a property or perhaps renovate an existing one.
One of your primary duties as a home buyer is to get in touch with several lenders and gain all the needed information that will help you in making a sound decision. It is also possible that you will come across loan officers who are not trained or knowledgeable about such programs. But maybe you can visit a local or state agency for more information. Abandoned properties are for sale at much lower prices. Once there is proper ownership again, the property will be taxed back.
7Loan Through Mortgage Brokers
Mortgage brokers refer to either people or companies whose main task is loan origination, and they will obtain a commission once they find a lender for a specific borrower. Mortgage brokers are often responsible for everything that is associated with processing a loan, such as accepting applications, obtaining credit reports, performing appraisals, and getting title reports. Brokers have contact with many lenders, and they can readily find a loan that is suitable to a borrower.
Luckily, the points discussed above have provided you with a better idea about the usual steps involved in getting a home loan. In case you are having doubts about a deal, you should approach an expert who can re-evaluate everything for you and give you sound advice. Although consultations may be an added expense at this time, remember that gaining expert counsel can save you from a lot of future financial troubles. So, good luck with getting the best financing plan for your dream house!