Creative Ways to Finance a House

With high mortgage rates and low housing inventory, now is the time to think about creative ways to finance a house.

Here are some alternative ways to finance a house, according to the National Association of Realtors:

Down Payment Assistance Programs

There are a number of down payment assistance programs, especially for first-time home buyers, that will cover all or part of the down payment. The assistance could be a grant, or sometimes a loan that is forgivable if certain terms are met.

Seller Financing or Assumable Mortgage 

Sometimes a seller is willing to finance all or part of the purchase price and let you pay it off gradually, as you would a mortgage. Consult a real estate attorney before entering into such an agreement.

An assumable mortgage is when a home buyer – with the bank’s approval – takes over the seller’s existing loan. This is especially helpful when the interest rate on the existing loan is lower than the current interest rate, and the seller’s don’t expect a big equity payoff from the sale. FHA, VA and USDA loans are all assumable.

Assistance from Family

Another creative way to finance a house is to ask for help from your family with the down payment. If you have minimal credit history, a family member may be willing to co-sign for you. Note that your family member will be held responsible for the loan should you fail to make payments, and they should be aware of the risks.

Shared Appreciation or Shared Equity

A family member, a friend or even a third party may buy a portion of the home and share in any appreciation when the home is sold. The owner-occupant usually pays the mortgage, property taxes and maintenance costs, but all the investors’ names are usually on the mortgage. Be sure to consult with an attorney before entering into this type of agreement.

Lease with Option to Buy

Rent-to-own arrangements give you time to save up to buy the house. Often, sellers will apply some of the rent to the purchase price of the home.

Short-term Second Mortgage 

If you’re in good financial standing with a solid income and little debt, you may qualify for a short-term second mortgage. This would allow you to make a larger down payment. Short-term second mortgages can also help you avoid having to pay for private mortgage insurance, which is required on conventional loans with down payments less than 20%.

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