Creative financing allows people, who might not otherwise qualify for a mortgage, buy a home. It can also be used to secure lower payments, which can save you money if you plan to sell or refinance soon. With creative home loans, it still is important that you shop lenders to get the best deal.
What Is Creative Financing?
Creative financing is any non-conventional loan term used to finance a house. Conventional loans are sold to such companies as Freddie Mac and Fannie Mae. They will only buy loans if the borrower qualified with prime credit, the loan is under a certain amount, and there was a down payment. Non-conventional loans, which account for 25% of mortgages in 2006, can have creative financing terms, such as a balloon payment or interest-only payments for a short period. You can also finance a home over this amount with a jumbo loan. And those with poor credit can also receive a sub prime loan.
Ways To Use Creative Financing
Creative financing is used to solve problems. For instance, if you don’t have a down payment, you could finance your home with two mortgages from different lenders. One covers 80% of the home price, the other for 20%. This spreads the risk between financial companies and allows you to avoid paying for private mortgage insurance.
Or maybe you want to purchase a home that is above the conventional mortgage cap – in 2006 the limit was $417,000 for a single-family home. Then you could apply for a jumbo loan with fixed or adjustable rates.
Be A Smart Shopper
The majority of mortgage lenders will provide creative financing of some sort. In fact, there are even government backed loan programs, such as FHA or VA loans, that are considered non-conventional. Once you decided on the loan terms you need, shop loan offers. Request loan estimates from mortgage lenders and brokers. Then compare their rates, fees, and closing costs. And make sure you understand all their penalty clauses.
In a short amount of time you can find a loan with both favorable rates and terms for your financing needs.
