By Kevin Chiu
Everybody needs a rich uncle when it comes to buying a home. The problem is most of us simply aren’t related to the kind of money needed to buy a home so getting a mortgage is the answer. However, in the credit crunch it’s gotten harder for many people to find financing. Conventional mortgages with a 20% down payment and high FICO scores don’t work for everyone.
The real estate boom was caused at least in part by new creative mortgages bankers came up with to make loans to just about everybody they could. In real estate one size doesn’t fit all so here are seven alternative routes to conventional financing.
1 – Owner Financing: Some property owners are motivated to sell their homes and carry the mortgage for tax reasons. However, these days many are reluctant to do so even if the home is free and clear of mortgages. It’s best to find an owner who is willing to work with you if you’re interested in finding owner financing. Down payments typically run from 10% up depending upon the owner’s requirements. Owner financing can come at a price. You usually get “price” or “terms” when negotiating a contract to buy.
2 – FHA Mortgages: Federal Housing Administration mortgages are taking on a larger share of home mortgages these days. The federally sponsored lender has been battered with loan defaults, but is still making mortgages with minimal down payments.
3 – VA loans: Veteran Administration loans are a great alternative to conventional financing and are still offered with no–money down. However, in order to qualify you must have a good job and have served in the military to be eligible.
4 – Farm Loan Program: You don’t have to be a farmer to qualify for a Farm Home Loan, but the area in which you want to buy your home and you have to qualify under guidelines that are federally underwritten.
5 – Gift Programs: In some parts of the country, new home builder funds provide a portion of the down payment, but there may be a catch. Some home buyers have been straddled with higher mortgage payments as a result. If you opt to go this route, it’s best to check with an independent real estate attorney for advice before signing any paperwork.
6 – State Programs: Some states have special funds set up to make mortgages to home buyers and typically cater to first time buyers offering low interest rates. These mortgage guarantee programs may often be found through the services of a real estate agent, who can refer you to a lender specializing in state and even county supported programs.
7 – Family or Friends: Last but not least you might consider going to a family member or friend to buy your dream house, perhaps a brother, sister or a friend with a little extra cash. A private loan at 7% for a period of time could look a lot better to someone with the extra cash sitting around than getting 2% interest in a typical savings account. It isn’t exactly like having a rich uncle but at least this way you might be able to open the door to your new house.