May 25, 2024


Mad about real estate

Creative Financing Options for Home Purchase

     Those who have not purchased a home before may not be aware of how stressful the buying process could be. Lenders required several documents to verify employment, income and credit.

     It is a sad but known fact that many individuals hoping to buy their first home cannot do so because of failure to qualify with the bank requirements. However, there are several options to a traditional bank mortgage. There are investors and private lenders who offer non-conventional financing for those who do not qualify for a bank loan.

     This is creative financing wherein a home mortgage includes several options. Anyone can purchase a property with the use of any of these methods in spite of credit or income. In some cases, a buyer could even save money by using these methods.

     Allow me to discuss these types of creative financing:

1.  Assuming a property is a type of financing that requires you to look for a property with assumable mortgage. This could be a little tricky; nevertheless, when you find one, the benefits could be endless. If you are interested in home assumption, consult a real estate investor since they are in the business to buy a home for less and sell it for a profit.

2. Another type is the no down payment. One of the reasons why many are unable to purchase a house is because they have no money to make a down payment. Fortunately, there are first time home buying and down payment assistance programs that could assist you. Contact local lenders and ask about this mortgage. Normally you are required to attend a home buying workshop before you are eligible. Nevertheless, carefully consider this option since one of the drawback could be a higher rate of interest.

3. A perfect option for those who do not qualify for a conventional loan is the seller financing. A seller will act as the lender of the home. The buyer, instead of paying to a bank will pay instead to the seller. Both will agree on a financing term, which is shorter than a conventional one. At the end of the term, the buyer will likely owe a balloon payment.  This works well for those who are trying to rebuild their credit. Once their credit is acceptable, the buyer will finance the payment with a conventional lender. The money will pay-off the seller and the buyer can start making payments to the lender.

4. A contractual agreement between seller and buyer is the lease option. A seller allows the buyer to rent the home as he or she saves money to make a down payment or improving credit score. The buyer locks into a future purchase and agrees to buy the home within a reasonable time. Both seller and buyer should obtain a lease option agreement with terms like price for future purchase, maximum time of agreement and the monthly rental. Some sellers may include a penalty fee if at the end of the term the buyer decides not to purchase the home.

5. A wrap-around mortgage is one wherein a seller offers you a second mortgage at a better interest rate. The seller will use part of the money to maintain the monthly payments of the first mortgage.

6. Another creative way of financing is through purchase of a fixer upper home. This is best if you cannot afford to buy your dream house yet but have enough funds to use on a fiver upper property or one that definitely needs repair and renovation. You can renovate and improve the appearance of the property and rent it out and use the money to save for your big purchase.

7. A joint tenancy is another option that enables you to save a large amount of money to buy a home. This is most common to married couples who opt to share the mortgage and the deed of the property.

     Never be afraid to face the risk in home buying, remember that the house of your dreams is just out there. Use the best option for you and enjoy!