The best loan that nobody wants you to use - Part 2

Both the mortgage broker and the real estate broker will steer the buyers toward the move-in ready house - that's a fact. There isn’t some vast conspiracy at work, in-fact, it might even be well intentioned, trying to spare their clients from what they see as the hassle of remodeling but the fact is, most agents do not have the knowledge or skill set to accurately advise their clients on buying a fixer or rehab property. So, they just shoot from the hip, telling their client, "Oh you wouldn’t want to do that, it’s so much work, etc." The homebuyer who was nervous already, quickly kills the deal and opts for the move-in ready home.

The transaction closes quickly, the real estate agent get paid and moves on to the next client.

If, you were the client during this transaction did the agent do you a favor by keeping you from remodel hell and a money pit, or did she prevent you from creating equity that would increase your financial health?

This question is at the heart of the mater and reinforces the inadequately of most agent to offer meaningful advice or council when buying these properties. To meaningfully answer the lost aggravation vs. lost opportunity, question you need to perform a detailed analysis, not rely on the “shoot from the hip advice of your agent”. Most buyers are not that well prepared, so they overly rely on their real estate or mortgage agent without first doing their homework.

Therefore, when they ask their agents about the these homes, and the loans that make them a great option, the answer is inevitably, "you don’t want to do that it’s too complicated and takes too long" (translation, I have never done one of these before, so don’t know the first thing about it and I need your transaction to close this month, so, I can pay my mortgage).

In our next post, we'll get to the heart of the 203K loan option.

The best loan that nobody wants you to use - Part 1

If we told you there was loan that let you buy a distressed property, then loaned you funds to make cosmetic or structural improvements to it and then rolled all the cost of improvements plus the purchase price into one loan you’d probably think that was pretty great. Now, what if that loan allowed you to do this entire transaction with only three percent down?

Impossible you say. Well these loans do exist, but the real estate industry doesn't want you to use them.

Imagine for a minute, that you’re a real estate agent. Most agents are “lone wolfs” they operate independently trying to acquire listings or help their clients buy houses. Real estate is an “eat what you kill” business, agents spend months working with buyers and sellers but, they don’t get paid unless a transaction happens.

So, real estate agents obviously want to get paid for their efforts. While it’s ultimately the buyer’s decision on what property to purchase, their decisions is greatly influenced by the real estate agent they are working with.

Buyers rely on their agents for insight into homes, neighborhood correct pricing and (good) agents have a lot to offer. Like everyone else, real estate agents want to get paid, so and since that will only happen when a transaction takes place, real estate agents have a built in bias to show their clients move-in ready properties.

So, there you are, the lonely real estate agent, you’re client has found a fixer home they are interested in and another one that is move in ready and they ask their agent for guidance, what do you think their agent will say?

This same point is also true for mortgage brokers. Typically, mortgage brokers are commissioned based, they are only going to get paid once your loan closes. Faced with the choice of steering you toward a more time consuming loan or a plain vanilla loan, what do you think they will do?

We'll answer this question and more in Part 2.