RE/MAX Real Estate Guide and FAQ - Questions and Answers for Real Estate Mortgages and Financing.
RE/MAX Valley Real Estate, Boardman, Ohio

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RE/MAX Valley Real Estate

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RE/MAX
Valley  Real Estate
1006 Boardman - Canfield Rd.
Boardman, Ohio
(330) 629-9200

RE/MAX Real Estate FAQ - Buying Your Home, Working With A Real Estate Agent

Your Mortgage - Questions and Answers
'No Money Down'

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Are there no-down payment home loans?
Before October 1, 2008 there were loans available from agencies such as the  Nehemiah Community Development Corporation and Ameridream, Inc. . They all had Down Payment Assistance Program that tied FHA loans with seller assistance to yield a 100% loan. HUD no longer permits this type of loan and with good reason.
Before the bubble years 2000-2006 a down-payment was a universal requisite in the conventional loan market. However, non-profit entities such as Nehemiah, Ameridream, and ACORN removed this barrier with programs that allowed the seller to provide the down payment, and it came with disastrous results. It was ultimately shown that this practice actually harmed buyers and was one of the major reasons for the mortgage melt-down that came in 2007. Not only did these programs skirt the screening protection of the down payment that traditionally kept people  from buying homes they couldn't afford, but they reduced or eliminated buyers equity in the home they were purchasing. Home sellers providing the assistance raised their selling price to preserve their net proceeds. The buyers, who had no money for down payment, happily went along, thus artificially raising the homes values. When the bubble burst, owners who received down-payment assistance, discovered their homes were not worth the money they still owed.
As mentioned, seller 100% down payment assistance programs were banned by HUD in 2008, although some misguided liberal legislators are still trying to revive them. In any case, home buyers interested in buying a house with nothing down may still be able to do so. Consider the following:
  • A veteran can buy a house with nothing down through a VA home loan, as can members of some chartered pension funds.

  •  Occasionally, a builder will offer no-down-payment loans to induce sales in an otherwise slow-moving new home development.

  • Desperate sellers will also promise to finance the down payment to get out from under a property. (See>> Real Estate Guide: Seller Financing.)

  • The seller (or another person), in a slow market, may opt to become an 'investor' paying all of the down payment for a buyer who then lives in the home and pays the mortgage, taxes, insurance, and maintains the property. The buyer and seller are thus co-owners in what is called an Equity Sharing Agreement, and share in any profit or loss on the ultimate sale of the home. (see below)

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What are Equity Sharing Agreements
An equity share agreement is a joint purchase of property by a buyer, called the Occupier, and a second buyer, called the Investor, The investor may be a family member, a friend, an outside source, or even the seller of the property. Together they obtain a mortgage to finance the purchase of a  property. Title to the home can be held in joint tenancy with right of survivorship, tenancy in common, partnership or as a living trust.
  • The Occupier -  will live in the home, keep it up, pay all the expenses and usually make all the payments on the mortgage.
  • The Investor - provides funds for the down payment.

Both Occupier and Investor agree to a termination date for the equity sharing agreement (usually 3 to 10 years). Before the termination date one of the following must occur:

  1. They may decide to sell the property and divide the profit according to the investment each has made.
  2. The Occupier may exercise a right to buy out the Investor's interest, usually by re-financing the property with another mortgage.
    1. An appraisal of the property will establish the buy-out price
    2. The Investor gets reimbursed for his portion of the investment,
    3. The Occupier is credited for any money spent improving the property
    4. Profit (money left after the joint-mortgage is paid off) is shared between the Occupier and the Investor according to their agreement.

Benefits for the Occupier:
  1. Becomes a home owner needing little or no cash down
  2. Low credit score is not an obstacle
  3. Entitled to the tax benefits of real estate ownership (Note: a renter is not entitled to the tax benefits of ownership. Therefore, the agreement must be written so the IRS does not see the Occupier as a renter or tenant.
Benefits for the Investor:
  1. Makes an above market return on his investment, especially in a rapidly appreciating real estate market.
  2. Acquires the opportunity to share in any future appreciation in the property
  3. Entitled to all the tax benefits of real estate ownership (Note: A lender does not receive the tax deferral benefits of ownership. Therefore the equity share agreement must be written so the IRS does not see the Investor as a lender.
Caveats:
  1. A joint ownership arrangement can cause problems if the resident fails to maintain the property or reneges on making the mortgage, insurance or property tax payments.
  2. The property may not go up in value, so the Investor who put up his credit or cash may not realize any profits. (For sellers in a flat or down market the lease-option may be a better financing plan.)
  3. As in any real estate investment, the shared equity agreement should be approached with profit, not just financing, in mind. Make sure you buy the property at a good price, in the right neighborhood, and at the right time.

A real estate attorney is recommended
  1. An equity share can be a very savvy way to acquire real estate with little or no money. However, the agreement must be written so the IRS does not see the Occupier as a renter, nor the Investor as a lender. Therefore, unless you are an attorney and understand tax law, do not draft your own equity share agreement.
  2. Even if you consider yourself a very experienced investor, equity share agreements require specialized expertise. Use a real estate attorney who understands these agreements well.

See >>

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Is equity sharing a good idea?
Equity sharing is not as popular in a slowly appreciating real estate market as in a rapidly appreciating one (when equity investors are easy to find). Nevertheless, a form of equity sharing called tenants-in-common (TIC) partnerships is becoming more popular, particularly in high-priced markets.

First-time buyers are the most interested in TIC arrangements because it gives them a way to buy property collectively with an unrelated partner. Loan underwriting standards are more complicated in TIC deals because lenders have more than one party's financial situation to assess. But many standard loan programs do apply.

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