Creative Real Estate Financing Methods

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Many banks will allow you to have as little as 5% into a home purchase, but will then only loan you 80%. The seller can take payments on a second mortgage from you for the other 15%.

This is the age of creative real estate financing. Maybe you remember when financing meant you saved up enough to put 20% down on a house, and then got a mortgage loan for the other 80%?

Manufacturer loans. Manufactured-home companies are arranging financing with 5% or less down for their buyers.

  1. State government housing programs. Most states have some sort of financing help in the form of a loan-guarantee program or outright loans for low-income buyers.
  2. VA mortgage loans. If you have been in the armed services, have a decent job, and can save two or three paychecks, you can probably get a home with a VA loan.

Called a “land contract” and other names depending on the part of the country you are in, this just means that you make payments to the seller instead of a bank. It’s up to you and them to negotiate downpayment amount, interest rate, and the term of the loan.

In some parts of the country, builders fund foundations that give you a portion of the downpayment, so you can get into a home with as little as 3% downpayment from your own pocket. FHA and other lenders have so far approved of or allowed this.

  1. FHA mortgage loans. The Farm Home Administration doesn’t actually loan the money, but guarantees your loan for the bank, so they can loan up to 97% of the purchase price, depending on the particular FHA program.

They are for those of you with bad credit but 20% to 30% to put down on a home.

That 7% return might look awfully good if their money is sitting in the bank at 2%.

Are there more ways to approach real estate financing? When you start investing, you can use other techniques for really creative real estate financing.

A risky way, but if you have a low-interest credit card, you can use it to come up with the downpayment, especially if you can pay it off soon, perhaps with a coming tax refund. The banks generally won’t allow this, but you can combine this with seller financing.

“No-doc” and “low-doc” loans, meaning no or low documentation requirements, are back, and you can find them through online banks. They are for those of you with bad credit but 20% to 30% to put down on a home.

Maybe you remember when financing meant you saved up enough to put 20% down on a house, and then got a mortgage loan for the other 80%? Many banks will allow you to have as little as 5% into a home purchase, but will then only loan you 80%. The Farm Home Administration doesn’t actually loan the money, but guarantees your loan for the bank, so they can loan up to 97% of the purchase price, depending on the particular FHA program.

Friend and family loans. That 7% return might look awfully good if their money is sitting in the bank at 2%.