Since early 2006, our financial system in this country is in disarray and considerably riddled. Hundreds of banks have already failed and have been closed; Hundreds of people have been forced in mergers (hunting rifle marriages) with stronger banks; Hundreds of people work as “zombies” institutions, they look like banks and try to act as banks but they can not do loans. Most of the banks “too big to fail” based in New York, California or Atlanta seem to work normally, but the truth is that they do not lend the “little guy”. They will be ready for public exchanges mainly. In ordinary English, get a loan from a bank for the average borrower is almost impossible.
– Do not operate your business or do not make the transaction
– Pay all species – do not borrow
– Borrower of non-bankers-friends, family and private lenders
– Transactions using non-traditional methods – Creative financing
What is “creative financing?
Creative real estate funding is an all-inclusive term. This essentially means organizing a transaction in which any type of funding is considered to be the transaction. Most or all these types of funding occur outside the standard government guidelines and restrictions. The financing vehicles considered do not comply with Fannie Mae, Freddie Mac, FHA, go or other HUD guidelines.
Examples of “creative” financing vehicles are: private party financing, seller financing, bank loan that does not meet the HUD guidelines, exchanging actions, the lease with the financing of the options, the contract Funding of the act, funding sharing actions, funding for home equity, credit card financing and any combination of the above.
Examine the tools “creative financing” individually
Among all the different types of creative financing tools mentioned above and most easily understood is the mortgage financing of the private party, which includes the financing of the seller.
The underlying concept is that the bank is not involved in the transaction and the private party lender takes the place of the bank. There are many advantages to delete the banking form from the transaction. The main advantages are:
– Qualifier (accept) the borrower is the decision of the private party
– Qualifications (acceptance) Property is the decision of the private party
– The interest rate and monthly payment are the decision of the private party
– The term of due date (balloon date) is the decision of the private party
– the amount of the deposit is the decision of the private party
– the time needed to close the loan is much shorter
– a valuable and long-term income flow is created
– The interest earned can be higher than any other available investment
All of these advantages, when combined, make funding for the private party mortgage a very powerful tool for closing an otherwise failed transaction. And, in addition, they can offer investment benefits that are not elsewhere.
The other side of the room
Now, after reviewing the benefits of private party funding, we should, in all fairness, consider negative aspects. No tools are the ideal tool for all jobs and any type of financing is the ideal type of funding for all transactions and for all people.
Negative aspects are summarized below:
– Emotionally, everyone is not comfortable waiting for monthly payments
– Emotionally, everyone is not comfortable with financial details
– Emotionally, everyone is not comfortable with a risk of loss
– Emotionally, everyone is not comfortable doing something new
– practically, a lump sum money may be necessary now
Make a win-win transaction
It is very important to honestly and objectively assess each part of the financing transaction. The goal is to make a win-win transaction for both parties. Are the personalities of the borrower and the lender compatible? In the note and the mortgage