Three creative ways to finance a purchase if you can’t go to a bank.

Oftentimes, homebuyers have enough cash saved up for a down payment but don’t have good credit, which means obtaining financing through a regular bank isn’t an option. In these cases, we use some pretty creative financing strategies. Here are three alternative routes you can take if you find yourself in a similar situation: 

1. Lease purchase. When your credit isn’t good enough to qualify for financing but it’s just a matter of time—say, six months to a year—until you can repair it, this option may be one of your best. You can first rent the property you want to buy, then work on your credit (e.g., pay down debts) until it’s healthy enough to secure the financing you need. With this path, there will be two contracts: a lease contract and a purchase contract. 

Typically, these lease purchase contracts last for about two or three years, giving you ample time to get your financial bearings straight. The best part: When you move in as a renter, you lock in the eventual purchase price right then and there. If after two years home prices have skyrocketed, you won’t have to bear that extra burden. 

“You can first rent the property you want to buy, then work on your credit until it's healthy enough to secure the financing you need.”

2. Seller carryback. In certain cases, when a seller’s home has been completely paid off, that seller can agree to act as the bank. For example, if a property is listed at $250,000, the seller may require a $50,000 down payment and the rest of that $200,000 to be paid off in installments of a specific amount for a certain period. This way, the buyer doesn’t have to go to a bank and try to get a standard mortgage. 

3. “Subject to.” Let’s say a seller has an existing mortgage of $200,000 and wants to sell their property for $250,000. A buyer could put a $50,000 down payment on the property and take over those existing payments “subject to the existing lien.” Though this particular strategy has the potential for a lot of hiccups and hang-ups, it’s just another creative way to purchase a property without traditional financing. 

Before pursuing any of these options, speak with an experienced agent who can help you determine whether they’ll make sense for the current market and/or your specific circumstances. If you have questions about this or any other real estate topic, I’m just a phone call away; I’d be delighted to help. I look forward to hearing from you!