Innovative financing opens other paths to homeownership

By , Special to The Christian Science Monitor

Even in today's tight-money, inflationary market, there still are opportunities for families who want to buy a house. And it is possible for those who have built up equity in a home to draw on this equity to increase their monthly income.

Consider this situation: A family wants to buy a house for $100,000. The family has sufficient income to qualify for an 80 percent mortgage loan, but it doesn't have nearly enough cash to handle a $20,000 down payment. In fact, the family can only come up with $4,000.

Does this mean the family cannot buy the house?

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If it wants, it can avail itself of a recently conceived plan that would allow the family to acquire its ''dream house'' with only the $4,000 for the down payment. It then can start building equity in the house immediately, instead of waiting a few years till its savings grow.

The plan, now emerging in several Western and Southern states, is an unusual variation of the ''shared ownership'' plan.

What it does is pair an investor, who provides most of the down payment, with a home buyer qualified to make the monthly mortgage payments.

In return for interest-free use of the investor's money, the buyer agrees to share ownership of the property and any appreciation (profits) when the house is sold.

The family's real-estate broker finds an investor who is willing to put up the additional $16,000. Remember, the family already has $4,000. The investor and buyer sign a special partnership agreement. The investor then owns 20 percent of the house and a specified proportion of value appreciation.

It also is agreed that the partnership arrangement will culminate at a selected time - usually at the end of a five- or seven-year term.

At that time, the buyer and investor have several options:

* They can extend the agreement for another specified time;

* The occupying owner may buy the investor's share; or the investor may buy the occupying owner's share; or

* They can agree to sell the house and share the profits equally.

It's a good opportunity for investors because it provides part-ownership in a premium type of real property with no management hassles or maintenance costs. There are no mortgage payments required of the investor. He can share in the partnership's write-off for tax purposes. And he receives a substantial return on his investment if the property appreciates as expected.

The occupant-owner benefits from a no-interest source of most of the down payment. And he will still receive a share of the value-appreciation profits.

This type of ''creative financing'' was given a boost recently when the Federal Home Loan Mortgage Corporation announced it would purchase mortgage loans that were tied to this type of special arrangement.

The mortgage corporation is a major secondary buyer of mortgages. In other words, it buys loans after they are first granted to a home buyer by a primary lender (savings and loan association, savings bank, or the like).

Another type of family financial problem can potentially be solved by still another innovative plan, also spawned in the current inflation-infested economy.

Let's assume a family is faced with heavy college-tuition payments over the next few years, or some other situation which calls for a heavy outlay of money. These costs, coupled with the other ever-increasing costs of maintaining a household, may be too much for the family to handle with its normal income.

The family also owns the house in which it lives. Using a new plan, the family can boost its monthly income flow.

The new concept, often referred to as the ''equity conversion plan,'' works basically this way:

A homeowner family makes an arrangement with a lender, allowing the family to receive a monthly check over a specified period of time. In return, the homeowner gives the lender a special kind of mortgage that uses present and future equity to secure and repay the loan.

The lender's reward for his contribution of monthly checks comes in two forms:

* A modest interest payment on the total amount loaned.

* A share in the increased value appreciation of the home during the ''equity conversion'' period.

Terms of the mortgage will call for repayment of the loan, plus a deferred interest charge, at a specified time in the future - perhaps several years after the arrangement began.

The interest charged will probably be at a fixed rate which is well below the prevailing rate for first-mortgage loans at the time.

The lender also will receive a specified share of the property's value appreciation during the equity-conversion term. This amount is determined by either a sale of the home or an appraisal. The repayment funds will probably come from a sale or refinancing of the property.

The new equity-conversion concept is really an outgrowth of the ''reverse annuity'' mortgage plan. It is most useful to the same group of homeowners - middle-aged or elderly couples with lots of equity in their home. Indeed, it's a practical system to generate added income when it is most needed. It is a particularly good investment for the lender, allowing him to earn interest and a participation in the property's value growth - and he does it without a large initial outlay of cash. Too, there are no management concerns.

These plans are among the newest chapters in the scenario of creative financing concepts now being developed to help home buyers and homeowners alike.

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