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What is Vendor Finance and How As a Property Investor Can You Use it to Your Advantage?

When buying a residential property, most purchasers typically do not have sufficient funds to make an outright purchase. While a majority of purchasers will look towards banks and other conventional lending institutions to loan them the necessary funds, they can sometimes find their loan application rejected on several grounds.

This usually happens when the purchaser does not have the minimum required funds to make them eligible for the mortgage loan or if the purchaser has earlier defaulted on a previous loan. In such cases, the purchaser has another option for funding the purchase of his residential property and that is to take a loan from the vendor itself. This is called vendor finance.

How Vendor Financing Works

To help us understand how this transactions works, we will draw an analogy from a land owner or vendor who may want to sell their residential property to a potential purchaser. If the purchaser does not have the capacity to purchase the residential property outright, he or she may agree with the vendor that the purchase price will be “increased” based on a pre-determined set of terms and conditions.

Very often, the contract of sale will state that the title to the property will remain with the vendor and will only pass when full payment of the amount outstanding is paid by the purchaser.

Typically, purchasers can expect to get vendor financing of up to 80 percent of the purchase price. Similar in principle to lay-by transactions where repayments are made, the difference in vendor finance is that the purchaser can actually reside within the property while making the repayments.

Generally, an investor will buy the property at a lesser market value and negotiate with a home buyer who will purchase it at market rates and in accordance to the agreement arrived at with the vendor. The whole idea is that the investor will earn a little extra money from interest and the higher sell price.

These will “wrap” the expenditures of the investor. This can be compared to charges or mortgages as forms of securities used by banks. Discharge of these charges or reconveyance of these mortgages depends on the repayment of any outstanding loans. Just like in these two, the interests of the parties are protected by well laid out legal instruments including caveats and inhibitions and right to sue on covenant.

These will limit the transfer of the title to the property to the purchaser until the rights of the legitimate parties in the contracts have been catered for. In case of the purchaser breaching the contract the vendor financier has the right to commence legal proceedings against the purchaser and the contract will stand annulled. The contract also protects the purchaser by disallowing the vendor to further borrow against the property or to sell it without proper advance intimation to the purchaser.

Advantages of Vendor Finance for Property Investors

It is possible to deduce the following advantages of this scheme to investors from the above discussion and everyday practice as follows:

• It will allow property investors to tap into the large pool of home buyers
• Both the purchaser and buyer gain through the use of this instrument
• Long-term cash flow is guaranteed for the investor
• As the property investor, you do not need to maintain the property as this is the mandate of the purchaser
•It is possible to qualify for government grants as an investor

Ways to Finance College: Bank Student Loans

Financing an education is a challenge, but bank loans can help. These are loans made directly by lending institutions, usually to supplement money from other aid sources. The details vary from state to state and lender to lender, but the following aspects should be considered before any student signs on the dotted line.

Choosing a Lender

The Bank

There are a number of factors to consider in choosing the bank. For starters, not all banks grant loans to students of all institutions. Any financial institution that will not make loans for school the borrower wishes to attend is not a prospect. The next factor is stability. Almost as important is the lender’s reputation. A check with consumer agencies will reveal any reports of unfair practices such as discrimination or deception about bank student loans. College financial aid offices have valuable information about this. Also consider that may be substantially easier to qualify for loans at one bank than at another.

The Offer

Even if the lender is up to par, one has to consider the particular bank loans on offer. The interest rate is a huge factor. This rate is usually fixed and will be based on the lender’s judgment of the student’s ability to repay bank loans. The primary factor will be the individual student’s credit history. Shopping around is the only way a student can find the best rate.

Rates are not the whole story, though. Students should consider the quality of a lender’s customer service. It should be easy to get answers to simple questions about bank loans and to deal with any problems that might arise. Another thing to look at is the terms of deferment and forbearance, ranging from the date the student will have to make the first payment to the bank’s flexibility if the student’s circumstances change. One should also consider special programs that the lender may offer with their bank student loans. If these are suitable to the student’s situation and result in a lower overall cost, that fact should be taken into account when comparing loans.

Getting the Loan

The Student’s Qualifications

To get loans, a person has to be enrolled in school, of course, but that is not the only requirement. The school itself has to be acceptable to the lender. No bank will lend a student money for a worthless degree that will not help pay off. Usually the bank will want the school to be accredited by a particular authority, and there may be other requirements. In addition, students with loans are expected to make progress towards completion of an academic program. This normally means taking at least enough classes to be considered a half time student. For borrowers seeking loans on their own there are also age requirements, which vary from state to state.

Cosigners

Traditional students, those who have just finished high school, usually have almost no credit history, and they may fall below the minimum age at which it is legal to take out any loan in their state. Even if such a student is old enough to borrow, the interest rate they are offered for loans is likely to be very high, and some students may have difficulty getting approved at all. To qualify and get a better rate, traditional students may wish to use a cosigner for bank loans. This is a person, usually a parent, with a good credit history who agrees to pay off if the student defaults. This is a substantial commitment, and students should think carefully before asking someone to become a cosigner. The cosigner status does not necessarily last for the life of bank loans. Some institutions allow graduates who have made a certain number of payments to apply to release the cosigner from their obligation.

Paying Back Bank Loans

Responsibility

All loans, federal as well as private, have to be repaid. Bank loans do not go away if the student drops out of school The loan still has to be paid, even if the former student cannot find a job. A former student’s income or lack thereof has no effect on the responsibility to pay off loans. The loan will still be there, piling up interest and affecting the borrower’s credit history, until the last dollar is paid. For this reason, bank student loans should be for the minimum amount possible.

Deferment

A deferment is an agreement by the lender to let the student put off making payments on bank loans. It is fairly standard to defer the first payment until a given number of months after the student leaves school to allow time for the establishment of an income that will support repayment. In addition, bank loans may be deferred during military service. One can even apply for a deferment due to unemployment or unexpected expenses like medical bills. It is important to realize interest on bank loans does not stop accruing during the period in which no payment is made.

Forbearance

A forbearance is a continuation of a suspension of payments on bank loans after a deferment ends. While it may be a good thing in certain cases, some lenders have been accused of pushing forbearance just to run up the cost, since interest, of course, continues to accrue. It may be necessary for a former student to negotiate a suspension of payments in some rare cases, but the cost means that this should be done as rarely as possible.

Before taking out loans, a student should consult their families and any financial professionals with whom the family does business, and talk to the financial aid office at the school in question. After getting advice and evaluating all the deals on offer, a student will be well placed to choose the best bank loans for any particular situation.

4 Things You Can Do to Control Personal Finance, and Not Have it Control You

Personal financial literacy isn’t something taught in school. We often develop personal financial habits from our parents.

This could be a very good thing or very bad thing, depending on how well your parents managed their personal finances.

Money however is a very sensitive topic for most people and most culture. The fact that the subject of money isn’t openly discussed means that it is vital for people understand how to better manage their personal finances.

I hope one day money will be discusses in schools just is how sex education is discussed. Their should be a “Safe Spending” class in school.

Millions of young people are in debt because of lack of financial education. Here are some tips on how to keep your personal finances in order:

1) Get a checking account. First off, if you don’t have a checking account, get one. Your checking account will be the hub of your personal financial management system.

Your checking account is the place where most of your money comes in, and goes out. You use it to deposit your work checks, and to pay your bills.

The benefits of having a checking account far outweighs the drawbacks of potential fees if you don’t manage it right.

2) Balance your checking account. Once you have a checking account, you should always know how much you have in there. That way you know what you can spend, and not have to pay banks over-draft fees which could be anywhere between $10 – $50 dollars.

Make sure you know what’s in there and keep it up to date. With the online financial tools available for you today, that shouldn’t be a problem.

You might even think about keeping a buffer. Like a $50 or $100 buffer, so you don’t go over your limit. You do not want to be squatting $0.00 because you are just one mess up from happening to get hit with banking over-draft fees.

3) Start saving for a rainy day. Do not spend more then you have certainly, but don’t spend more then you make as well. Save up for a rainy day. You should have an emergency savings account, totally at least 3 months of your monthly expenses.

4) Get a credit card. Yes, get a credit card, to build your credit. Make sure the credit card has no membership fees, but if it’s your first card you might have to put up with the fees. If you are a student you can get a lot of student credit cards.

The key with credit cards is to get it, use it for a little, but do not use it habitually. Keep a $0 or a really low balance. If you are using more then 40% of the credit balance you are in trouble. Pay down the balance and stop using it.