How to Buy a Home Using Creative Financing
Buying Your Home on a Budget
Are you in the market of buying your first home? Looking for ways to purchase one on a budget? Or, maybe being a first time home buyer is making it a little harder for you to qualify for a traditional loan. Thanks to some creative financing techniques, you may just be able to get that home yet. Here are a few ways to use creative financing to buy that house you want.
Wrap Around Mortgages-The seller of the property offers you a second mortgage, usually at a better interest rate than you can get from a lender. You make payments to the seller, who uses part of that money to continue making the monthly payments on the first mortgage.
Assumptions-The buyer assumes the owner's existing mortgage, meaning that you take over his or her monthly payments. You may even be able to assume their old interest rate as well! If you're lucky, you may find an interest rate that's less than the going rate!
Mom and Dad Mortgages-If your parents own their home free and clear, or close to it, and their property has increased in value they are in a good position to help you in several ways:
- Your parents can outright offer a cash gift to you. Lenders will want to see a "gift letter" that shows all demands for repayment are waived.
- Your parents can refinance their own home and pay for your new home in cash-giving you much more favorable terms than you could get elsewhere. You could then make monthly payments to your folks.
- Your parents can take out a life insurance policy worth the amount of the mortgage. When they die, you can pay off your mortgage with the non-taxable insurance proceeds.
Cut Your Down Payment Down to Size
- Find a desperate seller-someone who wants to sell their home NOW. Often these people will agree to "take back" a percentage of the purchase price as a loan to you instead of getting a large cash down payment.
- Consider equity sharing-You bring in a partner to help make the down payment and share the costs. You make monthly payments, keep the property in good condition, and make improvements while you live there. When you sell the property, you divide the profits with your partner.
- Borrow the down payment from your credit union-This loan will probably be a financial challenge to pay off, but it may be better than waiting forever to save for a down payment-especially if you really feel you've found the right property.
- Lease with an option to buy-Find a house that is up for lease and make a deal! Have your attorney draw up an agreement that locks the purchase price right away and sets a fixed date at which you will exercise your option.
- Find a co-signer for your mortgage loan-You need someone with a strong financial profile. Parents often make good co-signers. This is an especially good option for people who have the basic qualifications for a loan, but who live in areas where home prices are just too high.
- Watch for special offers by local saving and loans-Through these programs, qualified buyers can sometimes obtain mortgages with as little as 5% down!
- Investigate tax-free bonds-A solution developed by local and state governments to provide low-interest loans to low-income people. These loans feature interest rates below those charged by conventional lenders and enable you to take out a larger mortgage than you could otherwise afford.
These are some tricks of the trade that most lenders probably won't tell you -- the same creative financing used by real estate gurus like Carlton Sheets and other real estate moguls out there. Don't be afraid to take risks, the home of your dreams is out there, waiting for you to prove it's worth it. Go the limit and use the techniques the pros use. And by all means, have fun!
Buying a Home Using Creative Financing
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