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Typical Down Payment On A House

Your Typical Down Payment On A Home

 1000 500 Sam Radbil
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Buying your first Minnesota home can be an exciting yet stressful time. You want to find the perfect property in the perfect neighborhood while negotiating a great price, and you want to get all of this done before someone puts in a better offer. You also want to find the ideal down payment on a home. That’s hugely important. So, what’s next?

Once you have accomplished that, you still must obtain financing, and that opens a load of uncertainty. First time Minnesota homebuyers have a lot of questions, and one of their main worries is, “how much money do I need for a down payment?” Whether you are working with a realtor contract or looking for alternative financing like a contract for deed, this LendingTree chart is helpful as it shows state by state average required down payments:

Down Payment House Chart

Consistent

As you can see, average down payments fall into the 11 to 13 percent range. This doesn’t mean, however, that there aren’t alternatives. Actually, in today’s mortgage landscape, you can expect to pay somewhere between three and 20 percent of the sales price as a down payment. Government backed FHA loans do have that three percent first-time buyer down payment rate, and you can obtain some VA loans with no money down.

Higher Risk?

Zero Down Payment

If your down payment is lower, your lender will perceive you as a higher risk, and the result may be a higher interest rate.  Again, government programs including the Agriculture Department’s Rural Development Program can cut your rate, but generally, the less you put down, the higher your rate may be. Also, simple math tells us that the less you put down, the higher your mortgage loan balance will be, and that of course translates to higher monthly payments. Also, consider that for most loans with a less than 20 percent down payment, you may need private mortgage insurance or PMI. This can easily add $150 or more to your monthly payment.

Typical Down Payment

Calculator.net is a great site that can help you figure out exactly what your monthly payment will be, as it walks you through taxes, PMI, homeowner’s insurance and other costs. There is even a place to enter other costs if you are, for example, buying a house with student loan debt.

Solutions

So, you’ve calculated that you need a $10,000 down payment to finance your home but are worried that it’s going to be difficult to save that amount. Here are some ideas:

  • Use your IRA.
  • Borrow from friends.
  • Search for government down payment assistance.
  • Ask your rich uncle for a gift.
  • Sell stuff.
  • Get rid of your car.
  • Ask your boss for help.

Alternative Financing

Sometimes non-traditional financing can be attained with a lower down payment. Rent to own and contract for deed are two popular alternative financing vehicles.

Contract for deed mn is a popular non-traditional method used to purchase homes. Rocket Lawyer tells us,

“under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.”

Again, those that choose a contract for deed transaction many times find that down payment requirements are more flexible than those of traditional financial institutions. At C4D, we can handle all facets of Minnesota contract for deed transactions; they may be worth checking out. And as always, never enter into any real estate contract without first consulting legal counsel.

Bad Credit Score Home Financing

Buying A Home With Bad Credit: Is It Possible?

 1000 500 Sam Radbil
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Buying a home with bad credit can be virtually impossible for some people. And if you’re a person who is impacted by a terrible credit score (reasons below), then renting a home or apartment may seem like a great idea.

You’ll have no taxes, no maintenance, no real long-term commitments, and you won’t be stuck with a property you don’t want if you decide to move. But when you realize that your monthly rent payment is just like a car lease payment with none of it applying to equity, you may decide it’s time to become a homeowner. If your credit score is low, and you are unable to qualify for a mortgage, then you you may want to look at non-traditional financing.

Here are some reasons that you might not qualify for a mortgage loan:

  • you have delinquent student loans,
  • overdue credit cards,
  • late auto payments, or
  • bad Minnesota credit.

And just take a quick glance at this chart and you’ll see why student loans are such a HUGE issue.

Buying A Home with Bad Credit - Student Loans

If this is the case for you, and you truly are serious about buying a home with bad credit, then check out these methods to buy your dream home:

Get Someone to Buy It for You

If you’re lucky enough to have a rich uncle, maybe he or she will purchase the property for you and put your name on the deed. You could make the mortgage payments and start building equity.

Work on Your Credit Score

Buying A Home With Bad Credit - Your Score

Alternative financing for people who take aim at buying a home with bad credit is sometimes necessary because your credit report is incorrect. Avoid the necessity of finding MN bad credit financing by obtaining your credit report at Credit Karma and following the proper procedures for correcting errors. The folks at myFICO say:

“It’s important to note that repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score. In fact, out of all of the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. If you haven’t done that, then you need to repair your credit history before you see credit score improvement.”

Do a Rent to Own

In a rent to own transaction, those looking for MN bad credit loans can purchase a home by entering into a rent to own agreement. With a very small deposit, renters can arrange for a portion of their monthly rent payments to be put toward a down payment or a reduction in the final home selling price. These transactions are complicated, however, and it’s important to gain legal representation before signing any rent to own contract.

Get a Private Mortgage

You don’t have to get a mortgage from a bank; anyone can lend you the funds. Maybe your boss, a relative or a private lender would be willing to help. You could offer to pay a higher interest rate or could offer to pay an origination fee.

Buying A Home With Bad Credit? GO FHA

Even with a low credit score, FHA loans can still be a possibility:

FICO Credit Score

These can be obtained through any participating mortgage lender. Even if you have a previous foreclosure or bankruptcy, FHA federally guaranteed loans can be a great option.

Get a Contract for Deed Deal

Minnesota contract for deed loans are commonplace. In this scenario you first find a property for sale by owner. Then, have the owner agree to sell you the property on a contract. While many contract for deed sales are straightforward, legal representation is very important here, because a sale of property already encumbered by tax liens and/or judgments, for example, can cause you big trouble.

A Great Place to Find Help

C4D is a well-respected and established company that helps Minnesota home buyers with bad credit through the process of becoming a homeowner. While there are other agencies and companies that will assist, C4D is directly plugged in to the MN contract for deed network. Maybe think about contacting us while you search for bad credit financing.

Rent to Own House in Minnesota

Rent to Own vs. Contract for Deed

 1000 500 Sam Radbil
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So you want to buy a house in Minnesota? You don’t want to do a rent to own deal or use some method of
“non-traditional financing.” In that case, it should be as easy as the steps below, right?

  1. Go to the bank
  2. Talk to a respectful and trusting loan officer
  3. Fill out some documents
  4. Prove income
  5. Walk out with an approval for a $500,000 mortgage with low rates like the ones shown in this chart:

Unfortunately, however, that privilege is many times reserved for those with stellar credit, while others with the following issues may have to look elsewhere:

  • Low credit score
  • Judgments
  • Garnishments
  • Divorce
  • Self-employment
  • Tax liens
  • Low debt/income ratio
  • Job loss
  • Unverified income
  • High student loan balances
  • Delinquent credit cards

Luckily, there are alternative financing methods (since renting might not be your best option as Minneapolis rent prices are skyrocketing) like rent to own and contract for deed. With new residential sales still on the upswing as shown in the chart below, non-traditional mortgage products are very popular.

Median Home Price

How Rent to Own Works

Rent To Own Details

In a rent to own scenario, you first find your house, and if the owner agrees to enter into this type of non-traditional financing, you agree to a monthly rental amount, and pay a small up-front option fee that gives you the right to buy the home within a certain time period—usually no longer than three years. It is important to have a least a portion of your rent credited to the purchase price. So, if your rent is $1000 per month, for example, try to have at least $800 of your monthly payment applied to the purchase price of the house. Of course, the purchase price should be agreed upon ahead of time, and all of these components should be outlined in your Minnesota rent to own agreement.

The Advantages

  • Your rent money is going toward equity.
  • You have a fixed price for the eventual purchase.
  • You aren’t responsible for property taxes, and possibly not for maintenance.
  • You are locked in to more than a one-year lease.
  • You don’t need to learn the items on a mortgage loan estimate (LE)

The Disadvantages

  • You will have to find financing at the end of the lease term.
  • You could lose your option money if you can’t obtain a loan.
  • If you and the seller have over-estimated the home’s value, you could be underwater at the end of the rental term.
  • The property could be encumbered by liens you aren’t aware of.
  • If you don’t finish the deal your option money will be lost.
  • If you miss a payment, the entire deal can be voided.

Contract for Deed

Many who seek alternative financing turn to MN contract for deed instead. With this process, you have an actual contract to purchase the property at a fixed price. As the Minnesota Federal Reserve has said,

“In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled.”

Minnesota is and has been a leader in the utilization of contract for deed instruments for those that need bad credit financing. The process is well-regulated and recognized by many as an efficient and reasonable home financing method for those with special credit situations. In contract for deed:

  • Your payment is not rent–it goes toward the home purchase.
  • You have no option money on the table to lose.
  • Your contract term can be longer than a rent to own agreement.
  • You have home financing at a fixed interest rate.

Minneapolis Federal Reserve

But Wait — Minnesota Is The Leader

If an unscrupulous owner sells a property that is already encumbered with liens, that can be a problem. In addition, if an owner files for bankruptcy during the contract for deed term, this can cause serious difficulties.

The Solution

A great way to avoid the pitfalls of both rent to own and Minnesota contract for deed is to deal with a reputable seller. While there are well-intentioned sellers in the contract for deed arena, companies like C4D take the process a step further as they are in the business of ensuring that the financing process is equitable, legal and fair. And, of course, never enter into any financing transaction without consulting with your attorney.

Are Realtors Losing Money on Seller-Financed Deals?

 1000 500 Sam Radbil
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You have a quality lead on a new listing, but you get some news  — it’s going to be seller-financed. Now what? Can you still get real estate commission? Is it going to be 6 percent? Should you even bother with clients like this?

Well, if you’re a Minnesota Realtor then you know all there is to possibly know about Minnesota real estate commission, right? And you know all there is to know about seller-financed commission, right? Well, if not, here’s what you absolutely need to know.

First off, let’s face it, good Minnesota real estate professionals just do not give up on deals because of bank denials. Rejections occur for many reasons (just take a peek at the chart below):

  • High student loan balances.
  • Low credit score.
  • Divorce
  • Job change.
  • MN bad credit.
  • Recent foreclosure.
  • Bad debt/income ratio.
  • Tax liens and judgments.
  • Arbitrary loan officers.
  • Inability to prove income.
  • Small business ownership.

Minnesota Realtor Commission

If your client was denied by Bank of America, for example, hopefully you keep working the deal even though a credit union or a community bank also gives the thumbs down. In situations like these, trying to find homes for sale by owner and working a MN contract for deed sale might be the answer. While you may be hesitant to enter the subprime financing arena, there are many well-intentioned potential homeowners with bad credit that just need a way to buy a home.

Sub Prime Mortgages

Homegates states that a contract for deed lets buyers purchase a home without a mortgage. When a buyer and seller sign a contract for deed or contract for sale, the buyer agrees to pay for the property in installments. The seller retains the deed–the document that transfers title–until the buyer has fulfilled the contract by making the final payment.

Serious Commission Issues

Commission for Real Estate

OK, you found a seller that will agree to a contract for deed transaction. Of course, you now need to make sure that the property is not encumbered by liens or other mortgages, and a title search will accomplish this. After all due diligence has been completed, an attorney should draft the Minnesota contract for deed documents.

You’re Not Done Yet

In a traditionally financed real estate transaction, the Realtor’s commission is protected, and will be paid from the sale proceeds. In a contract for deed transaction, however, disputes can arise as to who is responsible for paying broker commissions. The seller may say, “I’m not paying real estate commissions to anyone. I never signed any agreements that obligated me to do so.” The buyer may state, “Commissions have to come from the seller. I have enough problems already; I’m probably paying a subprime interest rate to get this deal done, and I can’t afford any more expenses.”

What Is The Buzz?

A recent Trulia FAQ page offered this advice:

“Here’s a solution: Don’t act in the capacity of an agent (meaning you are not representing buyer or seller… just yourself). Calculate the equity in the home. Negotiate a price that leaves you (buyer #1) some equity. Draft up an assignable purchase agreement for the negotiated price. Assign the agreement to buyer #2 for a certain percentage of the purchase price. There’s your payment… now walk away.”

If that seems complicated, you’re right. A better way to protect your real estate commission is to be transparent when submitting a contract for deed transaction to the seller. Let the seller know that the deal should work like any traditional financing scenario where broker commissions are protected. Reasonable sellers should realize that real estate commissions are paid in most transactions.

Ensure That You Receive Your Commission

In some cases, reasonableness just does not apply, but luckily there are some reputable Minnesota contract for deed companies that will engineer these transactions. Our company, The C4D Crew, makes the point that they always protect broker commissions.

These intermediary financing specialists are a great place to turn if you need to do a seller financed deal because they will actually purchase the property from the buyer and then sell it to your client with a MN contract for deed. Using an experienced and respected company will greatly increase chances that your deal will close while, at the same time, ensuring that you do receive your commission.

The Real Estate Commission Basics 

For more information on the basics of real estate commission, check out this video from Redfin.

Minnesota Contract For Deed: 2018 Realtor Guide

 1024 451 Sam Radbil
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As a Minnesota Realtor, you have probably seen some bizarre and arbitrary loan rejections, but that doesn’t make you or your client feel any better. Approaching a lender for bad credit loans may not help since their rates can be predatory. What you do need to do is find a lender that will facilitate a contract for deed deal.

For example, you’re confident that you have a reasonably qualified client, and you’ve found them the perfect home. Your client is excited, has a down-payment, you write the offer, it’s accepted, and you’re off to the bank. The bad news comes quickly, however, as the lender claims that your buyer doesn’t qualify for financing. According to GoBanking Rates, buyer financing can be denied for not only a weak debt to income ratio but also for any of the following reasons:

  • A recent job change.
  • Credit report errors.
  • A property appraisal that comes in less than the purchase price.
  • Old liens and judgments.
  • Recently opened or closed credit card accounts.
  • Early retirement.
  • Excessive business debt.
  • 1099 income/inability to prove written off expenses.
  • Questionable tax returns.
  • Inability to substantiate where the down payment came from.

Legitimate Financing with Contract for Deed

The Minneapolis Federal Reserve Bank wrote a great article explaining the methods, risks and benefits of a contract for deed to finance Minnesota real estate. They simply state:

In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan. Indeed, public and nonprofit housing advocacy organizations have used the contract for deed as a tool to help low- and moderate-income households attain homeownership.

This U.S. census bureau chart shows a solid percentage of contract for deed homes and Hispanics are major subscribers to this type of bad credit loan solution.

Owner-Occupied Homes with Contracts for Deed in The U.S.

Minority Homebuyers Using Contract For DeedSource: American Housing Surveys 2001, 2003, 2005, U.S. Census Bureau.

Minorities Want To Buy Homes

Furthermore, this recent report from ABODO shows Realtors in Minnesota exactly where minority homebuyers are active, and Minnesota is right in the middle at 40 – 49 percent.

ABODO Report on Minority Homebuyers

The Mechanics of Contract for Deed Minnesota Financing

For individual contract for deed sales to work properly, the seller must realize that they will not get the full purchase price immediately. Instead they are offering an installment plan sale to their prospective buyer. While the buyer will gain immediate occupancy, the seller still holds the deed will remain the owner of the property until all payments are made. This is a great path to home loans with bad credit for the buyer, but the seller, again must be in a position to take installment payments rather than receiving a lump sum payment.

Free and Clear … and Legal?

Contract for deed Minnesota home financings are simpler if the seller owns the property free and clear of all liens and mortgages.  This way, the seller must wait until all installment payments have been made, but since there are no third parties—like banks—to deal with, all of the money goes to the seller; they merely have to wait longer to get the total amount due them.

While a seller with a bank mortgage on a property could sell that property on a contract for deed basis, this could be a problem for a buyer since the seller’s original mortgage may prohibit this type of transfer, and that could put the buyer at risk, if the bank discovers the sale.

In many states, especially Texas, this kind of solution to a loan with bad credit is done frequently. When the buyer asks about the due on sale clause in the seller’s original mortgage, the usual reply is “the bank will never find out, and if they do, they won’t care. Banks would never foreclose on a property if someone is making the payments.” Yes, this may be the case in some situations, but you as a Minnesota Realtor know that it is not prudent to believe that someone “would never” do something.

How You Can Get This Done

Luckily, there are companies like C4D. C4D specializes in Minnesota contract for deed deals. Unlike some individual sellers, however, C4D does not put the buyer at risk with original mortgage due on sale clauses because their banks do not require them. C4D has spent years developing solid banking relationships, and this drives successful and mutually beneficial financing arrangements.

How Contract for Deed Actually Works

Certainly, Minnesota real estate professionals should try first for conventional bank financing. If this fails, however, take the deal to C4D. C4D will analyze the situation, and quickly let you know if they can help. Minnesota Realtors understand that while C4D cannot automatically take any deal, they do have the approval leeway that many banks just do not possess.

C4D looks at every deal individually and independently. This is not cookie-cutter lending because C4D understands that all situations are different. Some loans may require different down payment percentages, and in certain circumstances, C4D can even help secure down payment dollars.

If a deal is approved, C4D physically buys the property from the seller and offers a contract for deed to the buyer. As in classic contract for deed financing, the seller owns the property, but the seller is now C4D.

Contract For Deed Is Simple

Since the 2009 meltdown, mortgage approval can be tricky. You can have a great buyer but the banks just say no. If this happens to you, bring your deal to C4D—a local Minnesota company—and see what they can accomplish. By the way, your Minnesota Realtor commission is totally unaffected by this process, and you will receive the full amount upon contract execution.

What are the Next Steps?

If you have any questions about Contract for Deed financing, you can always contact us here.

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