Term Purchases- Buying on Time
If you are not paying all cash to a seller, then you are buying on "terms'* of some kind, You are making a down payment, and are making payments over time until the property is fully paid off.
If the seller will let you make payments to him/her you will probably get the best financing. Seller financing on raw land may be available with as little as 10 - 20% down. In the case of a house or other improved property, the standard down payment is 30 - 50%. In today's marketplace most sellers are charging about 10% interest and are allowing the buyers 5 10 years to pay off the property. If you buy this way you will not get title to the property until you have finished paying for it but you can secure your position in the' chain of title by registering an "Agreement for Sale." Even if you have the cash to buy the property outright you may want to consider this type of purchase so that you can use some of your funds to build a home, apartments, or make improvements to an existing building on the property you are buying. In most cases your payments will be made monthly and will include principal and interest, so that at the end of the term of the contract the entire amount is paid off. Be sure that
you negotiate the right to pay off the
property early without penalty. Some
sellers really want all the interest from
the loan and do not want you pay it
off. This is very costly to a buyer. Read
your contract carefully. If you do not
have the ability to pay off early, you
may find yourself unable to sell your
property to a good buyer who wants
to pay all cash. Don't get caught without the ability to sell if you want to!
Bank loans generally have higher
interest rates than seller financing. If
you are getting bank financing for a
purchase, include a provision for loan
approval in your offer to buy. It should
read something like this: "This agreement to purchase is contingent upon
the buyer's ability to obtain a bank
loan within 15 days at an interest rate
not to exceed 17%. If the loan is denied Buyer has the option to cancel the agreement at purchase. In the event of cancellation. the Buyer's earnest money is refundable. The time to obtain the loan should be realistic depending on what the processing time is at the bank. and the interest rate you select should reflect the rates in place at the time you are applying. You make these limits to protect both buyer and seller. The seller probably doesn't want to wait for six months for you to get a loan, and you don't want to get stuck with an interest rate you cannot handle if the bank suddenly raises its rates.
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