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Alternative financing grows in popularity

By Staff | Oct 29, 2009

Morris

Agreements of Sale and Owner Financing are two methods of alternative financing that can benefit both the buyer and the seller when professionals are involved to ensure a successful transaction.

Since August 2007, alternative financing has been increasingly used as a tool to sell properties that may not be selling due to underlying financing issues. It is also a way to assist more buyers to enter the market. An estimated 10 to 15 percent of property nationally is now sold with Agreements of Sale and Owner Financing.

The term “Owner Financing” refers to a transaction in which the owner carries back the note and mortgage, and full title is conveyed to the buyer.

An “Agreement of Sale” is a transaction in which the existing financing is wrapped and the buyer receives equitable title. The final deed is conveyed to the buyer when the sale is completed and the financing is paid in full.

Often, what may not be understood is that owner financing can be part of a conventional loan within certain guidelines. For example, the loan-to-value and debt-to-income ratios have to be in accordance with lending guidelines (there are some variance among lenders on these). The term of the owner financing has to be five or more years.

Owner financing is generally interest only and has to be at a realistic interest rate. On owner-occupied and second home loans, buyers can put down 10 percent (if they qualify), and they would be required to carry mortgage insurance. With owner financing, they would not be required to have mortgage insurance.

A professional, local mortgage professional such as Premiere Mortgage — with both broker and banker services, and with its many lending partners — can work with all the parties involved in an Agreement of Sale, including attorneys, escrow, buyers, sellers and real estate agents and lenders.

Other services include reviewing existing loan documents, offering professional advice on viable transaction parameters and handling all other aspects of the transaction.

Working with the professionals at Premiere Mortgage to coordinate among realtors, lenders, title companies and others will add to the timely and successful conclusion of your Agreement of Sale.

Premiere Mortgage, with offices on Maui and Kauai, offers extensive loan options (including owner financing and loan modifications) through both broker and banking services. Tricia Morris may be reached on Maui in Kihei at 874-8800, Wailea at 891-8900, West Maui at 665-8800, on Kauai at (808) 822-2300 or toll-free at (800)-813-7711.