How to Treat Secondary Debt When Buying a Property


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Convention debt accrued when purchasing property in real estate dealings usually comes from banks, insurance agencies, savings and loan organizations and similar services. However, when these are not available, the prospective buyer must look elsewhere. This leads to secondary borrowing procedures such as through a broker, mortgage banker governmental assistance and state or local branches of monetary aid.

While these areas of help are available, in many situations, the interest or rates of repayment are harder for new homeowners unless they have a lucrative career. Before signing any contract with these secondary lenders, it is important to contact a lawyer to determine if the terms are appropriate to the circumstances of the borrower.

Some services exist solely to connect the borrower of funds with the lender that has the available capital. This usually incurs a fee for the association, and this may be added onto the conditions of purchase. This is usually called a finderís fee which often equals about one percent of the amount that is initially borrowed in this manner and paid by the individual that needs the funds for the real estate dealing. The associations made through these connections should be creditworthy and legitimate, or the broker may lose the finderís fee and, in certain circumstances, get reported to a local or regional agency.

Mortgage Broker Role

With many secondary sources of funds, the organizations often do not interact with the person seeking the financing but a mortgage broker only. This means that without the middleman, additional or alternate sources are not possible in many circumstances. In addition to the finderís fee, there are frequently higher interest rates or larger payments necessary to ensure those with credit too low to qualify for primary financing is paid. However, when the buyer has the necessary credit or other scores needed, these secondary sources may be similar to primary with the difference being a broker involved. A real estate lawyer should still be included to ensure the terms and conditions are valid, clear and beneficial for the person purchasing the property.

The Role of the Mortgage Banker

Instead of going straight through a bank, a mortgage banker is another middleman in the financial world. Any services offered through these persons are more than just borrowing money and connecting the investors. There are options for mortgage loans, packages of loans where the lender and investor may buy and sell the packages and similar options. The mortgage bankers are able to draw upon mortgage monies that are usually found in banks so that payments are provided to investors from the borrower. These professionals are the persons contacted to make and allocate the funds form payments on the mortgage. These types of bankers are usually still used even after the loan has been sold so that debts are collected, property taxes are paid, delinquent accounts are handled and various other actions are completed.

For providing these services, the management that oversees mortgage bankers retains a small percentage that is collected from balances. The ability to generate new loans is of the utmost importance to these facilities. Certain locations have these companies as the primary source of real estate financing, but in most areas the mortgage banker is a secondary or tertiary debt source. Because markets are constantly in flux, the mortgage banker is continually checking these fluctuations and keeping up to date on conditions, lender requirement and needed alterations to current dealings. Staying in touch and keeping communication open is crucial for these transactions. These professionals deal in residential and commercial properties.

Other Secondary Sources of Financing

While some sources of income are possible, the most used financing comes from companies. However, it is possible to borrow funds form a pension for real estate financing deals. It is possible to redirect pensions from stocks and bonds into real estate to increase the rate of return depending on certain factors. This would lead to active participation in projects, but it is possible to direct some of these funds to a real estate deal that permits the borrower to purchase a property. Additionally, various financing companies are available that may have consumer loans to allocate funds for purchasing a home. Because banks are the primary source, these institutions have branched out to provide real estate mortgages, second mortgages and loans.

Legal Considerations

Before any secondary debt is sought for a real estate deal, it is vital that a real estate lawyer is contacted. He or she may need to examine the source of the funds to ensure the deal is legitimate, legal and valid.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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