A common hardship experienced by a large number of home buyers is not being backed up by a huge lump sum of money in order to purchase the home of their dreams. Buyers are required to show an attractive sum of money or at least give an enticing earnest money deposit. But not all buyers have such capacity. Thus they seek acquiring loans from traditional banks. And the difficulty is a notch higher as most banks today have stricter rules regarding approval of loan applications. What can the home buyer then resort to in this case of immediate financial assistance? Looking out for creative financing options can be the home buyer’s way to finally achieve his most wanted property.An increasing number of home buyers are favoring these non-traditional financing options as the perks are clearly enticing. In most cases, the agencies that offer these creative financing options give the borrower opportunities to enjoy lower interest rates, better loan terms and even reduced paperwork. Below are a few of the most common creative financing options.1. Seller Financing – This financing type comes in variations, but the bottom line is, as its name implies, the seller also serves as the lender. This is a great yet rare deal in most markets. It basically works when the seller arranges to fund the mortgages of the house so as to quickly yield profit from selling the house. You, the buyer, will directly pay to the seller. Some steps required in the traditional mortgage repayment process are omitted. Thus, the closing can then be relatively faster. Most sellers initiating this process allow the buyers to move in immediately even before the deal has been reached escrow.
This has three main types. The first one, full loan, pertains to a short term agreement wherein at the term’s end, you will owe a balloon payment for the home. The other one, lease-purchase or rent-to-own, requires you to put down a larger deposit. You would lease the home for two to three years. In this span of time, a fraction of your monthly payments would be directed to the price of the home. The last one is also referred to as the wrap around mortgage. The seller would offer you the second mortgage on the home that is usually at a better interest rate. A percentage of your payments to the seller, say, on a monthly basis will be attributed to paying for the first mortgage.2. No Money Down Payment – This financing type comes in varied options as well. This will be mainly beneficial for first time home buyers. The Veterans Affairs, Housing and Urban Development, some federal and local financial assistance programs are the most common bodies that provide guaranteed loans. Also, there are HUD foreclosure homes that do not require down payments.3. Fixer Upper – This option actually requires you to firstly purchase the home and treat as your investment to gain profit from later on. Such homes are sold at very low prices in most markets. This is because the home is in very poor condition. Once you have purchased it, you can start making the renovations and then rent it out. You can then accumulate income to serve as you funding for your next home purchase, which is most likely your dream house.4. Other means to finance your home purchase endeavor can be done through peer-to-peer lending, online mortgage applications and other private transactions that mainly involve individuals who personal savings in cash and assets as sources of funding loans.
Meanwhile, there are a few risks attached to these apparently liberating financing options. Firstly, most borrowers have the tendency to misuse the borrowed funds. Misappropriations are a common problem for most private lenders and debtors as well. As carefree as such systems appear to be, you might have the tendency to borrow over and over again without thinking how the scheduling and budgeting of repayments will be done. It might be too late before you realize that you have owed hundreds of thousands of dollars already in a short span of time. Also, note that some attributes of these financing types are alike the traditional loan transactions. Once you, the buyer, falls short of your obligations, the seller or private lender has the right to terminate the deal contract as soon as possible.Thinking out of the box still proves to be yet another effective way to get your hands at getting your desired home. But each option must be well pondered over before fully committing yourself in it. Home buying and borrowing are your privileges, thus, handling these tasks wisely is crucial.
