Types of Creative Financing for Real Estate

Financing the purchase of a home can be confusing. There are many different financing options. Searching the internet or talking to a bank, you may not always find the most honest or accurate advice. When you are not sure how you are going to pay for a new home or you want to save as much money as possible, it may help to look at creative financing. If you are having difficulty choosing how you want to finance the purchase of a home, then look at these top 4 types of creative financing.

1 – Subject to Transactions

The first creative financing to look at is referred to as “subject to transaction”. This is a type of financing where the buyer takes on the current mortgage on the property. Potential buyers should always be cautious when considering this type of financing. You are taking the mortgage that the previous owner setup with a lender.If the lender does not feel that you are qualified for this mortgage, then the lender may end up asking that the entire loan be repaid instantly. If this occurs, then you will be forced to seek a mortgage through another lender in order to pay off the existing mortgage. The advantage of this type of financing is that you may not have to go through the financing process at all, if everything works out correctly.

2 – Short Sales

The next type of financing to consider is a short sale. This is a type of transaction where a home is about to go into foreclosure. The owner of the home may ask the lender of they could sell the property for an amount that is less than what is currently owed on the property. The buyer can then place an offer on the house that is less than the actual property value. The bank will receive less than what the property is worth, but they will not have to go through the foreclosure process and will be able to start receiving payments from the new owner. A short sale can greatly reduce the cost of buying a new home, if you are able to find a situation where this type of financing is suitable.

3 – Option Purchases

An option purchase is essentially like holding a property until you can get the financing you need to purchase the home. You are putting money down on the property and reserving the right to purchase the property at a later date. This is a type of purchase that the owner must agree to. When making an option to purchase, you will need to have enough of your own money available to put down on the property – this money cannot be taken from a loan.The seller of the property will agree on an option price with the buyer. The primary reason for considering this type of transaction is if you find a home that you want but cannot yet seek financing from a lender. Instead of having the seller list the property, you are agreeing to have him wait until you can get a loan.

4 – Seller Financing

The final type of creative financing to look at is seller financing. Instead of seeking a loan from a bank or other financial institution, you will make payments to the previous owner. This type of financing is often only available if the seller does not currently have a mortgage on the home. A down payment is typically required. Consider using one of these types of financing if you are having difficulty obtaining traditional financing for a new home. The reason these are referred to as creative financing is because they are not as common and require special circumstances. Thanks for reading, please leave any comments you may have.

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