In today’s real estate market, one of the dominant factors in whether you can actually purchase a home is not so much whether or not you can afford it, but whether or not you can qualify for a loan. While you might think at first that these two issues are one and the same, in reality the process of qualifying for a loan is very separate, in many cases, from the issue of whether or not you have the income and ability to make a monthly payment on a house. With so many people coming out of foreclosures or short sales and hoping to get their lives back on track – including getting back into a home of their own – it’s starting to feel like “The American Dream” of homeownership could be permanently out of reach thanks to stringent lending requirements. However, credit or lack of a 20-percent down payment should not hold you back if you wish to purchase a home. There are many creative financing options available.
- Owner Financing
This is also known as seller financing in many cases. A seller may be willing to hold the note on a property themselves in exchange for a higher purchase price on the property. This is a great way to get into a home for a lower down payment or without having to qualify with a mortgage lender.
In a lease-option, the buyer rents the home for a predetermined period of time before actually purchasing the home – usually at a predetermined price. A lease-option can require the would-be buyer to get separate financing for the purchase or permit them to access seller financing if they have paid rent in a timely fashion. Sometimes sellers will put aside part of each month’s rent toward the down payment on the house and register timely payments to help buyers improve their credit.
- Subject-To Financing
When a buyer purchases a home via a subject-to transaction, they are literally buying subject to the terms of the existing mortgage. These transactions may require down payments to the seller, but do not require the buyer to get new financing because the mortgage itself does not change. It remains in the original state – and original name – even though the property itself changes hands and a new party is making the payments.
- Home Swapping
In the past, home swapping on a permanent basis has been relatively uncommon. However, in today’s tough market more and more people are swapping their properties and their house payments so that growing families can enjoy larger homes and smaller family units, such as couples with grown children that no longer live at home, are not stuck with large houses, unused space, and huge mortgage payments.
- Private Financing
If you have trouble getting a loan through a major bank, consider trying a private lender. They may charge higher interest rates, but their terms are often more flexible.
These are just a few options if you are having difficulty financing a property in the conventional manner. Remember, it’s not just your credit that is an issue. Owners of multiple properties – as most investors are – tend to have trouble qualifying under today’s stringent lending standards, so don’t be afraid to investigate creative and flexible financing options.
Thank you for reading the Bryan Ellis Real Estate Letter!
Your comments and questions are welcomed below.