Creative Real Estate Financing

Despite, and in some cases because of, all the turmoil in the mortgage markets there are still creative ways to finance a real estate purchase in the Chicago market if you know where to turn. We work with a few different lending professionals that keep us in the loop on the current alternatives available.

For instance, Tom Fishwick of Guaranteed Rate tells me that he still has the ability to do 97% financing with borrower paid mortgage insurance. However, only one lender out of the 40 he works with and one mortgage insurer out of 5 will currently back such a loan and I imagine it’s only available for people with very good credit scores. Of course, his fear and mine is that this type of loan will disappear any day as the mortgage situation continues to deteriorate.

Tom also shared with me some updated pricing of FHA loans where borrowers can get up to 97% financing if their credit score is above 499 (you can also get loans with scores below 499, but you need a bigger down payment). However, there is a mortgage insurance premium that depends upon the loan to value ratio and the borrower’s credit score. There is an up front premium that ranges from 1.25% to 2.25% of the loan amount and an ongoing premium that ranges from 0.50 – 0.55% of the loan amount on an annual basis. The other trick is that the home must be FHA approved, which is usually not a problem unless it is a condominium. Then you get into a whole range of additional issues that I just don’t want to get into here.

This week I also heard Barbara Fifield of Chicago Bancorp who told me about a new program they are offering for people at the other end of the financial spectrum. This program allows buyers to borrow up to 80% of the value of stocks deposited with the lender with no income or credit score. However, this means that the stocks that are deposited can no longer be traded, though you still collect the dividends from them. In addition, as you can imagine, if the price of the stock goes down by more than 20% you have to come up with additional collateral – or they can sell off your stock and pay down the loan.

Regardless of how bad the mortgage situation gets people will always come up with creative ways of keeping the business running.

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