Chapter 3
Where's the Money Coming From?

Your first priority - before you even start looking at properties - is to establish your borrowing capacity. In other words, how much can you borrow and what price range should you be looking at. Your borrowing capacity will determine the area and property type.

FIRST, PUT YOUR FINANCIAL AFFAIRS IN ORDER

Obtaining pre-approval of finance from a lender puts you in a strong bargaining position when the right opportunity comes along.
Always remember that there are 3 critical factors that banks look for when you apply for a loan:

Credit history
Capacity to meet repayments
Collateral

It is therefore important to put your financial house in order before applying for a loan. The key to success is to ensure that you have a perfect credit record.

You will also need to set aside enough cash for the following items:
Down payment.
Closing costs.
Rehab costs.
Interest costs.
Loan costs.
Selling costs.
Taxes.

DECIDE WHICH FINANCE METHOD TO USE

Finance method 1: Loan assumption
The assumption of existing low interest loans is without doubt the easiest and most inexpensive way to finance a real estate purchase. VA and FHA are loans that were originated by the previous owners, and are fully assumable by anyone without the need for qualification issues such as a credit report or loan application. The only requirement is a small assumption fee.

Finance method 2: Land Contract./ seller financing
A land contract is where a buyer agrees to purchase a home and pays principal and interest to the seller, along with a down payment. Whilst the buyer retains possession of the home, the title remains with the seller until the conditions of the contract are fulfilled. If at any time you default on the contract, the property reverts back to the seller.

Finance method 3: Conventional lending.
Conventional loans for real estate purchases are made through savings and loan associations, as well as banks. If a home does not have an assumable loan, then a conventional loan is another alternative way to fund the purchase. The usual loan application procedures will apply.

Finance method 5: Lease options (or, rent to buy).
If you do not have sufficient funds for a down payment, you may wish to consider the use of a lease-option to secure the property.
The lease-option is also known as the rent-to-buy. It basically involves you renting a fixer-upper with the option to buy it at a later date. The strategy is discussed in greater detail later in the book.
In a nutshell, you would pay the seller a small option fee, and rent the property at market rent. Since the property is run down, the rent is likely to be substantially low.
You then proceed to rehab the home and find a buyer at the new and increased price. The next step is to exercise the option to buy the home and simultaneously sell it to the purchaser.

Full details on Lease Options as well as a Salple Lease Option Agreement that you copy and use are included in the Fixer Upper Fortunes Manual.
Click here for more details: www.fastfixerupperprofits.com