Posted by Competitive Edge Real Estate Services on 3/31/2020

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With a mortgage, a buyer is applying for financing to purchase the property in its entirety. They're relying on their credit and assets for approval before assuming responsibility of the full property. In a land contract, you're cutting out the need for a formal lender and relying on the seller to approve or deny your application.

The seeming simplicity of the transaction may make some people discount the importance of negotiation. However, there are a few things to keep in mind so both the buyer and seller are comfortable with the terms of the agreement. 

Talk to the Seller 

With a land contract, you may be more beholden to the seller than you would be to a lender in a traditional mortgage. If the seller thinks of you as a tenant rather than an owner of the place, you'll need to discuss their exact involvement over the course of the contract.

Because the seller won't receive the full value of the property upon sale, their financial insecurity is entirely understandable. They may want to check up with you over the phone, in-person, or through a third-party. If you're uncomfortable with the level of oversight, you may need to speak up or find a different property. 

Make sure you understand your obligations during this time. Some buyers are treated as a renter of the property — until it comes time to make significant and costly repairs. If you're responsible for all upkeep, you may be able to negotiate more freedom in exchange for the additional expense. 

Think Through the Finances 

One of the starkest differences between a traditionally financed home and a land contract is the speed of repayments. Even if you do find a seller willing to extend the contract, it can still be a major strain on your finances. As you factor in your current assets and credit score, you should also consider the future.

If the final payment is large enough, it may still require a substantial loan. If your credit hasn't improved enough by the time the contract nears the end, it could be a significant blow to your savings. And if you can't meet the terms of the contract, the seller will get to keep the money you've already paid them (as well as the property). 

Negotiating a land contract means thinking through the repercussions of each clause. While the terms may seem looser than a standard mortgage, there may be strings attached that aren't as obvious at first glance. Ensure that you understand your financial and practical responsibilities before signing on the dotted line. 




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Posted by Competitive Edge Real Estate Services on 1/17/2017

Being self-employed comes with a lot of perks. Self-employed workers often have the freedom to set their own schedule, work from home, and take breaks whenever they feel like it. They also have the ability to write things off as business expenses on their taxes. When it comes to buying a home, this last perk can become a huge problem. If you own your own business or work as a freelancer, odds are you'll be deducting things from your taxes that the average employee doesn't: travel expenses, advertising, licensing, equipment, repairs, or even rent for your office. When tax season rolls around, all of these deductions feel like a godsend. But if you plan on buying a home, all of these costs will appear as negative income. For people who spend a lot of money on their business or freelancing, it could do a lot of damage to your apparent income when lenders take a look at your finances. However, you do have options when it comes to getting approved for a mortgage that is to your liking. In this article, we'll cover some tips on how to apply for a mortgage when you're self employed to give yourself the best chance of approval.

Carefully document your income

When you sit down with a lender and hand them your proof if income, you want to make it as obvious as possible that you're earning money in a reliable and predictable way. Lenders will want to see multiple documents that can help paint a better picture of your income and finances, including:
  • Bank statements
  • Schedule C tax forms
  • Profit and loss tax forms
  • Completed tax returns
  • Credit score (they will run a credit check)

Separate your business and personal finances

If you own your own business, you likely have business banking accounts you use for expenses and invoices. But freelancers and contract workers often simplify things by just using their personal checking and savings accounts for income. To make things clear for lenders, you should put your income and business expenses into a separate business account. Not only will this make it easier for lenders to quantify your income, but they can also use this information to see that your expenses are for helping your business rather than personal spending.

Timing is everything

There are a number of factors that go into choosing the right time to apply for a mortgage. Being self-employed only complicates the matter since your income might not be as steady as your average wage worker. You'll want to commit to a mortgage at a time when you've had at least two consecutive years of good, reliable income. You'll need to prove this with the aforementioned documents (bank statements, tax forms, etc.). Part of this planning could be to avoid large business expenses in the two years leading up to your mortgage application. This isn't always possible, of course, but it could be enough to boost your apparent income to get you approved for a better loan.

Seek specialized lenders

Some lenders are aware that there is a large portion of the country made up of self-employed workers and small business owners. They go out of their way to work with people who are self-employed so they can give them fair deals on their mortgages. To find specialized lenders, you'll have to do some research online, but it could make all the difference when it comes to getting approved for the loan you're looking for.




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