Ready to buy the home of your dreams? Well, not everyone has the cash needed for a substantial down payment these days. Then, there are those with credit issues who simply aren’t able to qualify for a mortgage loan. In these cases, traditional financing may not be the best option for you. That’s when more savvy financing methods are in order.
5 Methods of Financing to Buy Your Dream Home
1. Traditional Financing
Traditional financing is offered through banks and credit unions. The current interest rate on various traditional loans are as follows:
- 30-Year Fixed – 3.99%
- 15-Year Fixed – 3.17%
- 5/1 ARM – 3.19%
- 30-Year Jumbo – 4.07%
However, the foreclosure crisis has caused traditional lenders to tighten up the criteria for borrowers. In most cases, you’ll need a credit score of 680 or higher to get approved. You’ll also be required to submit official documents to prove debts and income. Then, you’re looking at a down payment of up to 20%, although some programs, such as FHA, require as little as 3.5% down.
2. Seller Carry Back Financing
This is a form of creative financing that allows you to buy the home of your dreams using “Other People’s Money”, or OPM. Seller carry back is one method of owner financing where the seller carries the note for you. However, the seller must own the property outright… free and clear. The seller is no longer interested in owning the home, but has no problem with getting paid for it in monthly payments instead of all of once.
Terms are usually about 1-5 years, at which time the entire amount of the note must be paid off. You’ll need to refinance the note in order to pay off the seller, which is much easier to qualify for than a purchase loan.
3. Subject-to Financing
This creative financing method is a way to quickly become a homeowner. “Subject-to” is actually short for “subject to existing financing.” In other words, you agree to purchase the home on the condition that the financing that already exists, remains in place. So, even though the title gets transferred to you, the current loan remains in the seller’s name. Yet, you’re responsible for making the mortgage payments.
Very few sellers will want the responsibility of leaving the loan in their names for a long time, which is what makes it a short-term solution. But, it allows you to buy the home of your dreams, without having to come up with a big down payment.
4. Seller Second Financing
“Seller second” is another form of creative financing, and it’s used quite often. With this financing method, the seller provides you with a second mortgage. This is usually to cover the all or most of your down payment.
Let’s say you get pre-qualified for a $1,000,000 loan to buy Park City real estate, and the lender requires a 20% down payment. You can make an offer to the seller contingent on him/her carrying a note for the $200,000 down. The seller gets the majority of the equity ($800,000), and you get possession of your dream home.
5. Lease with Option to Purchase
A lease option allows you to take possession of your dream home, with little to nothing down. You don’t own the home until you actually get financing, which is usually 2-3 years later. But, you do get to live in the home in the meantime, as you save for your down payment or clean up your credit issues.
In most cases, you make monthly lease (rental) payments, plus an agreed upon amount each month that will go towards the down payment when purchase time comes.
Ready to buy Park City real estate? Jensen and Company will help you find the Park City home of your dreams. Talk to the Jensen and Company realtors and get started on your home search today.
Jackson Cooper is a writer and real estate enthusiast, involved in the outreach team at Jensen and Company. Look to Jensen and Company, true leaders in the Park City real estate industry for your dream home. Follow them on Twitter, Google+, and Facebook. Check out the incredible high life homes for sale in Park City today!