Buying a Home With a 100% Home Loan

Its pretty unheard of these days with the way the worlds financial crisis has effected the banking system to be able to obtain a 100% bank loan to buy a home, isn't it? The banking system has really tightened up on its lending criteria and expects a healthy deposit to be brought to the table now before supplying a loan to its customers.

With Rent to Buy systems this is still possible though! If you have good credit and the only thing preventing you from obtaining a bank loan is a lack of or no deposit - Rent to Buy systems have a solution. The deal type is called the Seller Funding the Buyer's Deposit. For this Rent to Buy deal type to work, the seller will need to have at least 25% equity available in the property and be happy to leave this equity behind in the deal for a period of time (usually between 2 to 7 years) for the buyer to use as his/her deposit.

In return for these flexible terms, the buyer will usually be prepared to pay the price that the seller is either hoping for or needing for the property (homework must be done to see what other comparable properties have already recently been sold for in the area when determining the sale price). The seller would take a caveat out on the property's title to protect his/her interest (the money left behind in the deal) until the end of the term when all monies owed to the seller would be refinanced out.

The Seller Funding the Buyer's Deposit works just like a normal house transaction. The buyer applies for bank finance just like in a normal house sale, with the use of the sellers equity as their deposit. Once finance is approved and has gone conditional, the contracts exchange and settle (within a 4 to 6 week period). The title of the property changes over instantly into the new buyers name. All the terms agreed upon are documented into the contract BEFORE signing, exchanging and settling. This includes documenting about the seller's equity that is left behind in the deal, how long the term is going to go for, whether interest will be due on the money owed or not, etc.

Interest is usually normally only payable on the money left behind in the deal if it were a seller's market (where the seller could have sold his/her property to the next buyer for the same price easily, or more). In a buyer's market (where the seller could not have achieved the price he/she is obtaining), no interest is paid. Of course, this term is up to the seller and the buyer to discuss and come to agreement on.

The funds that are left behind in the deal are documented in the paperwork by the solicitors. In real estate terms this is called a second mortgage carry back.

During the period of the term, the buyer would look after and do as many improvements and maintenance to the property as possible (polishing the floorboards, painting inside and out, doing the gardens up, etc). This will encourage capital growth and equity to build up in the property, which is just what the buyer needs and wants, as at the end of the term the buyer will be looking to refinance out this capital growth in order to pay the seller back all that is owed.

The buyer entering into this deal type will generally have lower monthly repayments than someone who had less than 20% deposit and had to borrow more from the bank. Therefore the buyer's monthly cash flow should be healthier than someone who say had only a 10% deposit. There would be no mortgage insurance premiums to pay either, as the bank covers this when the deposit provided is 20% and above. There are good savings to be gained when entering into a Seller Funding the Buyer's Deposit type deal.

Our DIY Rent to Buy manual explains step by step how to implement this Rent to Buy deal type, as well as the other options available in Rent to Buy. Buying your own home using these systems is now possible with the help of the DIY Rent to Buy manual. Just because you have no deposit saved does not mean that you cannot buy a home of your own!