Buying a Home Using Bank and Second Mortgage Finance

If you have no deposit and good credit, there is still a way that you can purchase your own home using Rent to Buy systems. This deal type is called the Seller Funding the Buyers Deposit. Only a seller who has at least 25% equity available in his/her home will suit selling their home to you in this way. It may be possible for some buyers to borrow more and require less Seller Funding the Buyers deposit, but as a general rule, you will be best to work on the Seller Funding 25% of the buyers deposit and purchasing costs.

In this Rent to Buy deal type, the seller leaves behind in the transaction some or all of their equity to allow the buyer to use as their deposit when applying for bank finance. The price that the seller is hoping for/needing is achieved as the buyer is willing to pay the best sales price to the seller in exchange for flexible terms (the seller leaving behind some or all of their equity for the buyer to use as their deposit).

The seller may have been having trouble selling and obtaining the price that he needs. Using flexible terms of sale (Rent to Buy systems), the seller will achieve the best possible sales price as well as having no commissions to pay to their local real estate agent as no real estate agent is required. The seller and the buyer work directly together to set their own house sale/purchase up. The seller won't lose any equity selling this way, just a portion of it remains in the deal for a period of time which is received at the end of the term in one lump sum (or in progressive payments, depending on what the buyer and seller are both happy with).

This Rent to Buy house sale goes through just like a standard house sale - the new buyer applies for bank finance, contracts exchange and settle in 4 to 6 weeks time (depending on how long it takes for the bank finance to go through). The title of the property changes over into the new buyers name.

The equity that is left behind in the deal is drawn up in paperwork by the solicitors. The buyers repayments will be somewhat lower than if they had borrowed the full amount from the bank, easing the pressure and providing an opportunity to have a smaller monthly commitment in regards to the buyers mortgage repayments.

Purchasing a property this way also can relieve some of the upfront costs to the buyer, such as mortgage insurance. If the seller is leaving 20% or more of his/her equity behind in the deal, the buyer will generally not be charged mortgage insurance premiums by the bank, the bank will normally cover this (although many non bank lenders still want the borrower to pay mortgage insurance anyway).

A caveat is taken out on the property by the sellers to protect their interests (which is the money/equity left behind in the deal which is owed to them by the Rent to Buy buyer). The caveat prevents the new buyer from being able to on sell the property to anyone else until they have paid the seller out in full all monies owed to them. 

The length of the term that is set out for this money/equity to be paid back to the seller is usually between 2 to 7 years. The reason this amount of time is needed is to allow for capital growth to rise in the property to enable the new buyer to refinance out the borrowed deposit. With the process of time and the buyer doing improvements to the property (such as painting inside and out, polishing floorboards, doing the gardens up, etc), capital growth will normally occur in the property. If its during a market where property prices are steadily increasing, this result will normally happen fast. If its during a slow period, it will obviously happen slowly.

Whether or not interest is paid on these monies owed really depends on the real estate market. If it is a buyer's market (where buyers can pick and choose between many available properties), no interest would be paid as the buyer will be paying the best possible price in return for the opportunity to use flexible terms in the house purchase.

If it was a seller's market, (where there are too many buyers all willing to outbid each other to purchase the property), interest would usually be paid to the seller, as the buyer would reward the seller with monthly interest payments to thank him/her for selling using flexible terms.

As the end of the term agreed upon draws near to a close, the new buyer would begin to instigate having  a valuation done on the property  to prepare to refinance out the sellers equity in order to pay this money back in full, or pay out the balance, if regular payments have been made.

Once this money is paid back in full, the caveat is removed from the property and the seller has nothing more to do with the property. The seller receives a nice lump sum of cash at the end of the term, which has been like forced savings for the period of the term. The seller can now freely move on with life having obtained all of his/her equity that he/she deserves, giving away none of this equity to any third parties (such as real estate agents) in commissions. The seller also achieved the best possible sales price without being "conditioned" down by his/her local real estate agent.

The Rent to Buy buyer has realized their opportunity of entering into home ownership through a flexible term sale and is happy to compensate the seller in the way of paying the best possible price for the property.

Our DIY Rent to Buy manual covers this Rent to Buy type house purchase in full detail, along with other Rent to Buy purchase options, including steps to implement purchasing your own home this way. Banks, real estate agents and investors are not needed with the purchase of our DIY Rent to Buy manual. You can put yourself into your own home by dealing directly with the seller - our DIY Rent to Buy manual shows you how!