END PURCHASER FINANCING FOR RESIDENTIAL PROPERTIES

Abstract

Residential end - purchaser financing is an "evergreen" component in the overall financing field. It has always been a more prominent form of financing as compared to others such as commercial or industrial financing. Residential properties serve not only as a good hedge against inflation but also provide a roof for everybody. Hence, a purchase of residential premise is perhaps one of the most crucial decisions to be made. As such, the choice of financing techniques to be adopted is also an important factor as the type of loan taken up can be stretched to more than 20 years. The current low interest and high loan-to-value financing may seem to be highly attractive to many potential homebuyers. However, one cannot reasonably expect such conditions to sustain for long in view of the improving economy. The survey carried out by the author indicates that there is scope for developers to participate in the financing of their own projects. In this study, "Buy-Down interest" financing, a technique practised abroad, is introduced. It is a technique whereby developers "buy-down" interest rates to offer a lower mortgage interest rate and hence lower monthly repayments to the prospective purchasers. This technique is found to offer benefits for both developers and end-purchasers -it assists the developer in marketing his property and enables the latter to qualify for new loans.