Creative Financing Offers Challenged Home Buyers Potential Solutions

Posted by Joe Manausa on Friday, March 20th, 2009 at 10:25am.

if you find that you cannot pay cash and you cannot borrow money from a traditional mortgage lender, then you are a candidate for some creative financing options.

One of the disappointing side-affects of the boom market, where loan products were created so that everybody could buy a home, was the loss of the skilled buyers' agent. Back in the day, we had to know all kinds of creative financing options so that "marginal" buyers could still make it to the closing table.

The days of needing skill and experience to help more buyers are back, but I have experienced a void in the number of great real estate agents who know how to execute all of the different types of financing options and contract negotiation points that will get buyers with limited or damaged credit to own a home. Today, I want to dust off a few of my favorite ways to help somebody buy a home.

The Best Way To Buy A Home

Obviously, the best way to buy a home in Tallahassee is to pay cash. When you have a large bag of money in your hands, you are able to negotiate a deal that has limited contingencies and will allow the seller to move rapidly. You will most likely get your best deal when paying cash.

But over 90% of people who want to buy a home in America do not have the cash on hand to purchase a home without having to borrow money. It is for these people that must have a full bag of tricks in order to optimize their ability to buy a home.

The Best Way To Borrow Money

The best way for a home buyer to borrow money is to deal with a trusted mortgage lender and to get the best prevailing rate and loan package that the market has to offer. With all the craziness going on in the economy, with the government socializing banking and printing money, we are seeing purchase loan rates in the low 5% range and refinance money at 4%.

Unfortunately, there is a healthy segment of people who want to buy a home but do not qualify under the stringent lending guidelines that these mortgage lenders must follow. For these special buyers, there is typically no solution and they are forced to rent a home until they repair or improve upon their credit. It is for these people that we must understand non-traditional lending options and creative financing.

Creative Financing Offers Challenged Home Buyers Potential Solutions

Creative financing real estateSo, if you find that you cannot pay cash and you cannot borrow money from a traditional mortgage lender, then you are a candidate for some creative financing options. Here are a few of my favorites that have allowed many people to buy a home when their previous REALTOR® or mortgage lender said it could not be done.

Lease-Purchase A Home

With real estate inventory levels high, sellers are having to consider options that they would not have preferred just a few years ago. One of these options allows a buyer to contract to buy a home, and move in the house prior to closing. A lease agreement provides for the terms of the occupancy prior to closing, and the closing could occur within whatever contractually specified period of time the buyer and seller have agreed upon.

Some of the buyer-benefits of the lease-purchase agreement in real estate include:

  • Demonstrating an ability to make payments on time (improving credit)
  • Allowing for part of the monthly lease payment to be credited towards a down payment
  • Locking into a purchase price at today's values
  • Moving into the home before the ability to buy it has been met

Purchase Money Mortgage

The term purchase money mortgage is used to describe seller financing. When the seller provides some or all of the money necessary for the buyer to purchase the home, the loan that is created from the seller to the buyer is called a purchase money mortgage.

Seller financing is one of the least understood and yet best ways to get marginal buyers into homes. Most sellers, when fully briefed and educated on the process, will happily provide some level of purchase money mortgage if it means the successful sale of their home.

The terms of a purchase money mortgage are totally negotiable and this is where working with a great real estate professional is worth a fortune to both a challenged home buyer as well anyone trying to sell a home in today's market.

Additional Or Alternative Collateral

Here is a technique that not many REALTORS® recommend, but solely because they do not even know that it exists. This works for buyers who have assets that have equity in them, such as a stock portfolio or maybe cars, boats, etc. By working with a commercial bank, a loan can be secured against the asset and the real estate to raise the down payment or the entire purchase price for home.

I wrote about one of the more exciting uses of this process last year in an article about creative financing using a stock portfolio. If you want to know about the latest creative ways to leverage your stock portfolio (but not have to sell it) in order to buy a home, you can read all about it by going to the link at A loan program with the security investors demand in today's economy.

There Are So Many More Creative Home Buying Solutions

There are just too many ways to get somebody a home if they are highly motivated to buy a home.  I learned one of my favorite ways of buying a home by watching how Wall Street packaged some of its bond deals. This process is something that I refer to as a zero coupon bond second mortgage, and you can read about it in the blog I wrote last April by following the link.

What about trades? Often times, you can find ways of trading something with value for all or part of the home value that you want to buy. Some sellers are asking themselves "what is my home worth now?" and they know they need a creative buyer to help them. Trades are too often overlooked and usually occur between builders and developers, but they represent a viable solution for many homebuyers and homesellers in today's market.

The moral of the story is that if you really want to be a homeowner, you can be! There is so much inventory and you only have to convince 1 home seller that you are a worthy buyer. So, if you are this serious homebuyer, make sure you have a great REALTOR® and go and get yourself a new home!


Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

12 Responses to "Creative Financing Offers Challenged Home Buyers Potential Solutions"

Real Estate Finance wrote: [...][...] While many real estate professionals do not like or understand creative financing, I actually enjoy the transactions that require a little mental agility to complete. Sure, easy “deals” are fun too, but being able to help a buyer that nobody else knows how to deal with brings a lot of satisfaction to the REALTOR® that knows creative home buying techniques. [...][...]

Posted on Wednesday, January 27th, 2010 at 7:07pm.

Lease Purchase Agreements Popularity wrote: [...][...] because it increases the pool of potential home buyers for their property. As with any type of creative financing for home buyers, an agreement which allows a buyer to rent for a period of time before buying the property makes it [...][...]

Posted on Monday, April 5th, 2010 at 9:45am.

How To Buy A Home With Bad Credit wrote: [...][...] Creative Financing Offers Challenged Home Buyers Potential Solutions [...][...]

Posted on Friday, October 22nd, 2010 at 12:11pm.

Rent To Own Homes – Buyer Beware wrote: [...][...] I am an advocate of using a lease purchase agreement (rent to own homes) and many other forms of creative financing for real estate. But just because that I advocate the use of this form for real estate acquisition does not mean [...][...]

Posted on Tuesday, October 26th, 2010 at 11:38am.

Residential Lease Agreement wrote: [...][...] a few of our recent posts have been on creative financing in real estate, and many referred to using a residential lease agreement during some portion of the creative [...][...]

Posted on Wednesday, October 27th, 2010 at 11:56am.

Ally wrote: Hi! I just wanted to tell you I really appreciated this blog post. I have been feeling down and out about buying a house. We've rented for 5+ years, paying in excess of $1700 in rent per month in the DC area. I know we can afford a house, but poor credit is hindering us and all we keep hearing is, "wait and get where you need to be financially." Meanwhile, we keep missing deals. I consider myself to be pretty resourceful so I have decided that, no matter what, I am going to find a way to buy a house and this blog was inspirational. You're absolutely right, all we have to convince is one seller-- and I am going to make it happen!

Posted on Thursday, May 19th, 2011 at 3:00am.

Joe Manausa, MBA wrote: Way to go Ally, my bet is on you!

Posted on Thursday, May 19th, 2011 at 9:01am.

John wrote: I own a home outright with nothing owed, and would like to get a mortgage for about 35 percent of the value of the home.I am self employed with credit score around 680.If you could help me find someone that would be great

Posted on Friday, May 18th, 2012 at 6:57pm.

Joe Manausa, MBA wrote: Hey John, I have forwarded your request to a lender that should be able to take great care of you and get you an excellent rate.

Posted on Saturday, May 19th, 2012 at 12:15pm.

aly wrote: A few years ago I remember hearing about private investors advertising programs in which one could find a home they would like to buy, the investor would then purchase that home and set up a deal with the finder to then purchase the home. Where can I find these investors?

Posted on Monday, July 16th, 2012 at 8:03pm.

Joe Manausa, MBA wrote: That's mostly fiction Aly. You can make offers on Craigslist and similar sites hoping to find investors. Good luck.

Posted on Monday, July 16th, 2012 at 8:20pm.

Donna wrote: I've found a house I'd like to purchase in a great neighborhood. My credit score between the three reporting agencies ranges from 680 to 760. The house I'd like to purchase is below appraised value. What are some creative ways to come up with a down payment solution? I recently went through a divorce, sold a house I couldn't afford, and depleted my savings in the process. :(

Posted on Thursday, September 13th, 2012 at 12:54pm.

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