Buying a Home Using Bank and Vendor Finance

Do you have good credit but no deposit saved (or not enough) to enable you to obtain a bank loan to purchase your own home? Rent to Buy systems can help you by obtaining your deposit directly from the seller and borrowing the remainder from the bank.

To set up a property transaction such as this, you will need a seller who has at least 25% equity in his/her property and who is happy to leave that amount behind in the transaction to be used as your deposit. The remainder of the money is acquired through bank finance. 

Sellers who fit into this category of selling with flexible terms may have already tried selling the traditional way but with no results. Maybe they were unable to achieve the price that they were hoping for or needing. Maybe they have a hard to sell home on a busy main road, or power lines going over or close to the property. A Rent to Buy buyer receiving flexible terms of sale in this way (called the Seller Funding the Buyer's Deposit) are happy to compensate the seller for their flexible terms of sale by paying the price (or close to the asking price) that the seller is hoping for or needing (once checking the local marketplace for comparable sales of similar properties of course).

Often this type of real estate transaction has much lower costs, for example, there will be no mortgage insurance to pay on loans where a 20% or more deposit is paid. The bank pays this cost when the deposit produced is 20% or more. The buyers mortgage repayments to the bank will also be less depending upon how much the buyer has had funded to him/her from the seller, because they have not borrowed 100% from the bank or paying interest on 100% of the purchase price.

Depending on the real estate market at the time, no interest is paid on this money that is left behind if it is a buyers market (where there are more properties than buyers). If it were a sellers market (where there are more buyers than properties), interest would be paid to the seller to compensate the seller for the flexible terms of sale they have given (their equity left behind in the deal to enable you, as the buyer to use for your deposit).

The length of the term usually goes between 2 to 7 years. This length of time is required to enable capital growth to accumulate in the property so the new buyer can refinance out the equity left behind and pay the seller back in full. Capital growth can be encouraged by the new buyer doing improvements to the property such as doing the gardens up, painting the inside and out, polishing the floorboards, etc. This repayment is usually done in one lump sum at the end of the term.

All terms agreed upon between the seller and the buyer are fully documented into the contract so both sides are fully protected. The worst case scenario (what if the capital growth has not accumulated enough at the end of the term?) should also be documented into the contract, with conditions on what will happen should the worst case happen. It is vital that each side obtain their own independent legal advice.

In a Seller funding the Buyer's Deposit type deal, contracts exchange and settle in the standard 4 to 6 week period. The title of the property changes over straight away into the new buyers name, just like in a standard house sale. The money left behind in the deal is drawn up in the form of an unregistered second mortgage loan agreement. In real estate terms, this is called a second mortgage carry back.

The seller would take a caveat out on the property to protect their interests (the money the seller has left behind in the deal). The caveat prevents the new buyers from being able to on sell the property to anyone else before the seller has received all of his monies back.

Once the monies are paid back in full, the seller removes the caveat from the property title and has nothing more to do with the property. The seller has had a form of forced savings with this equity that was left behind and now has a nice handful of cash. The seller received the price that they were hoping for or needing without losing any money paying real estate agent fees and commissions.

The new buyer found their opportunity to enter into home ownership without having their deposit saved. A home purchased and a home sold. All without middlemen and with the great advantage of both sides receiving a winning deal!

Our DIY Rent to Buy manual shows you step by step how to implement a house purchase like this, without needing real estate agents, banks or investors! Imagine still being able to purchase your own home even if the banks have said no to you at the moment! Our DIY Rent to Buy manual shows you how to implement this opportunity.