Self Help

Regardless of your circumstances, if you are trying to secure a piece of property at a real estate auction, you will need to make arrangements so that you’ll have the bid money immediately and the balance in cash in 30 days.

Consider a home equity loan; it’s one of the very best options open to you. If you own a home, you will learn (if you don’t already know) that banks are competing to loan you money on what is basically a second mortgage on your present home. (Of course, if you have no existing mortgage, the new one can’t be a second mortgage.) As a rule of thumb, the bank will loan you up to 75 percent of the appraised value less any existing mortgage.

You don’t have to borrow the money immediately. You can go through the entire procedure, get a commitment for the total sum, and take out the cash only when you want to use it. The arrangement is similar to a business’s line of credit at the bank. You can take cash as needed and pay interest only each month on the unpaid balance. There are no monthly repayment commitments, but if you choose to reduce at any time your next monthly interest payment is reduced.

You’ll be required to pay interest only. If you have reduced the principal balance and find a future need for funds, you can again borrow up to the original 75 percent figure. There is no requirement to pay it up for five years. At the end of the five-year period, the loan will become a permanent loan and you will then be required to retire it on a 15 year amortization basis.

If you’re an investor, you can use any part of the money, when and if you need it. Let’s say you use it to purchase and fix up a property. You can then apply for a permanent mortgage loan on the new property and pay off the equity loan.

Or say you’re a young couple seeking affordable housing. You may be able to get one of the sets of parents to make the home equity commitment and loan you the necessary funds. When you’re in title, you can apply for a permanent mortgage. There’s just one caution in order: If you’re in title, the loan is actually a refinance. On a conventional mortgage refinance, the bank will usually give only up to 75 percent of the appraised value of the home. The procedure is different from that followed in a first-time purchase.

Suppose that 75 percent figure falls short of what you owe; there are a couple of avenues you can follow. The first is to purchase the home in your parents’ names. They can then contract to sell it to you, and as a purchaser you can get as much as a 95 percent loan. You can then get sufficient cash to pay not only for the purchase, but for the needed repairs as well.