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Fresh Approaches to Private Residential Real Estate Lending

We are beginning to see paradigm shifts in housing finance. A few new companies are bringing fresh approaches to private residential real estate lending and the programs are geared to those who have less than 20% down payment. Below are two variations of the equity sharing programs and a third option called “Intra Family Lending” where family members are becoming mini-lenders (not the same as gifting funds). All three are designed to bridge the financing gap that is not being met by traditional mortgage lenders.

Shared Appreciation:
Pension and endowment funds/portfolios and the like have not typically invested in residential real estate, but this is changing given their long-term outlooks that dovetail nicely with residential real estate. And now there’s a new investment vehicle that aligns their cash with credit worthy home buyers. It is an equity investment that pays off when you sell the house. If there’s a profit, you pay them a prearranged share of the gain. And if there’s a loss, the lender likewise shares in the loss. The investor “invests” in the home at the same time the buyer does.

Here’s how it works: Say you want to buy a house that sells for $500,000 but you’re short on the 20% down payment ($100,000). They will provide up to half of the down payment, or $50,000. In return, you typically agree to a 60-40 appreciation split with 40% going to the company if and when you sell. For instance, let’s say after 10 years of ownership the home is worth $600,000. Should you sell, the lender would receive its original investment back ($50,000) plus its share of the change in value, or $40,000. You receive the rest. Also, during the time you owned the house, you made no payments to the lender’s equity and the 20% down payment allowed you to avoid costly mortgage insurance. Should values decline, the buyer benefits as the lender will share in the loss (60-40 split).This also works if you are “underwater” in your home and want to refinance.

Selling Shares in Your Home:
Large corporations raise capital by selling shares in themselves and now homeowners are able to do the same. In another new variation of shared appreciation, buyers may be able to raise money for a 20% down payment by “selling” shares in their homes. The specialized lender will be the marketplace facilitator that will act like a stock exchange. Owners or buyers would decide what share of the appreciation or depreciation would be passed on to the investors.

You would list your shares for sale at $10,000 each and investors would bid on those shares based on any number of variables, including location and anticipated rate of appreciation. A good property in a sound location in a desirable part of the country would tend to draw more or higher bids than those in other places. The facilitator takes a 5% share for its troubles, you get the rest. You can live in the property as long as you like; there is no minimum requirement. But once the property is sold, the facilitator pays out the investors’ share of the profits, maybe 40% of the gain for a 20% share. If there is a loss, you and your investor split that in a similar way.

Intra-Family Lending:
A fast-growing investment tool is turning the gift funds concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves. With the help of certain “Intra-Family” Lenders who structure these deals, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles may exist, including student loan pay offs to reduce debt-to-income ratios their young relatives may be facing. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits and, at the same time, open the door to homeownership for their relatives.

Interest Rates:
There is still time to refinance! Housing data and weaker than expected economic reports pushed rates down slightly the past few weeks, and we expect this trend to continue until economy shows stable signs of improvement.

Current Conforming Rates (Pmyts based on a average loan amount of $250,000) for a historical perspective on rates please visit my blog on our website
Loan Program Monthly Pmyt Rate APR Points
30YF $1248 4.375 4.625% 0
20YF $1531 4.125% 4.375% 0
10YF $2557 3.375% 3.625% 0
15YF $1771 3.375% 3.625% 0
5/1 ARM $1070 3.125% 3.375% 0
7/1 ARM $1088 3.25% 3.375% 0
FHA 30YF $1157 3.75% 3.875% 0
FHA 15YF $1756 3.25% 3.50% 0
Current High Balance Rates – Max Loan Amount $625,500 (Pmyts based on a avg loan amount of $550,000)
30YF $3169 4.50% 4.75% 0
15YF $4510 3.625% 3.875% 0
5/1 ARM $2393 3.25% 3.50% 0
7/1 ARM $2469 3.50% 3.75% 0
FHA 30YF $2586 3.875% 4.125% 0

Disclosure: These are our current conforming and High Balance rates based on primary residences only, your actual rate could be higher depending on several “Risk Factors” such as credit score, LTV, Cash-out, Investment prop, 2nd home, zero cost etc. Please call us for an accurate custom quote including jumbo loans up to $2 million and beyond

The cornerstone of Trulending Mortgage is a fierce commitment to integrity, service and expertise and these core values have, thankfully, resulted in client relationships for life. We appreciate the opportunity to work with you on your next refinance or home purchase transaction. Visit our testimonial section to see what our customers are saying; Please pass this along if you think we can help any of your close friends or family.

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