Those who have never bought a home before may be unaware of how extensive and stressful the process of buying a home could become. Lenders require many documents to verify income, employment, credit among others.
Sad, but true, many people hoping to purchase their first home are unable to do so because they fail to meet the qualifications required by banks. Nevertheless, there are some alternatives to a conventional bank mortgage. There are private lenders and investors who are willing to offer non-conventional financing to those who are not ideal candidates for bank loans.
This financing is known as creative financing in which a home loan includes various options. Anyone can buy a home with the help of any one of these methods regardless of income or credit. In some instances, a homebuyer could even save money with these methods.
Let me discuss further the kinds of creative financing:
1. Property Assumption is a kind of creative financing that requires you to find a home with assumable mortgage. This could be quite tricky. However, once you find an assumable property, the benefits are endless. If you are interested in assuming a home, you should work with a real estate investor since they are in the business of purchasing homes for less and selling for a profit.
2. Another type of creative financing is the no money down payment. One of the main reasons why many are unable to buy a home is because they do not have enough money for down payment. Fortunately, there are first time home buying and down payment assistance programs that could help. Contact local lenders and inquire about this home mortgage. Usually, you will be required to attend a home buying workshop before you qualify. However, take time to consider this alternative since this could entail a higher interest rate.
3. Seller financing is a perfect alternative for those who do not qualify for a traditional financing. The seller acts as the lender for the property. The new owner, instead of making payments to the bank will pay directly to the seller. Both buyer and seller will agree on financing terms that are shorter than a traditional loan. At terms’ end, the buyer will most likely owe a balloon payment for the home. This kind of financing is good for individuals who are rebuilding their credit. Once their credit is acceptable, the buyer will likely finance a balloon payment with a conventional lender. The money they get will pay-off the seller and start making regular payments to the lender.
4. A lease option is a contractual agreement between the buyer and the seller that allows the buyer to rent out the property as he or she saves money to make a down payment or improving their credit score. He or she locks into a future purchase price and agrees to purchase the property within a considerable amount of time. Buyer and seller should get a lease option agreement and establish the terms such as future purchase price, maximum length of agreement and the monthly rental price. Some sellers may include a lease option agreement to impose penalty if a buyer decides not to purchase the home at the end of the term.
5. Wrap Around Mortgage. The seller in this type of mortgage offers you a second mortgage at a better rate of interest than what you can get from a lender. You make payments to the seller who uses a percentage of the money to continue making the monthly dues on the first mortgage.
6. Another creative way of financing is through a fixer upper option. This is the best option if you cannot afford for your dream home yet, but have enough to use on a property as your stepping-stone. For example, you can purchase a fixer upper property or one that desperately needs renovation and repair. Through proper renovation, you can remedy the poor condition of the home, have it rented and use the rent money to start saving for the purchase of your dream house.
7. Another option is the joint tenancy, which allows you to save a considerable amount for home purchase. This is more common to married couples who prefer to share the mortgage and the title for the property.
Do not be afraid to take the risks in home buying, your dream home is just out there. Use the best technique and have fun!
