Saving money can be challenging. Especially when you are trying to save for a huge downpayment to purchase a home. Homebuyers are becoming more and more creative when it comes to buying properties.
When you want to purchase a property but don’t have the required resources, creative financing is an alternative worth considering. These innovative strategies gained popularity in the 1970s when interest rates for personal loans were very high. If you are ready to acquire some property, but the conventional methods tell you that your credit score is low, it’s time to look for creative ways to get you there.
Many first-time homebuyers think it’s easy to go straight to a bank or other traditional lenders and acquire a mortgage. Many times, it is! However, if you are short on cash or have bad credit, consider the different strategies below. Here are four creative financing options used by homeowners.
1. Cash-Out Refinance
In this option, you tap into your existing property’s equity by pulling out money against your house. You can typically only do this when there is actual equity in the property you own. Some homeowners are surprised at the amount of money they can pull out from refinancing a home.
This is a great strategy if you have done renovations on your house and have owned it for a few years. Typically, the renovations will add value and equity to the property you own. From there, you can pull out a portion of that, and begin shopping for the next property. That money can be your downpayment for the next one!
2. Seller Financing
Did you know that some motivated sellers have gone the extra mile by helping you finance the property? Sounds crazy, right? This strategy isn’t quite as common unless. Landlords and investors are most accustomed to this strategy when buying and selling houses.
Essentially, the seller acts as the bank for a temporary period of time. You take ownership of the property, but they act as the bank for a set time. This means that you pay them monthly stipends to own the property. If you don’t, they usually have the right to take the property back and foreclose on you. This strategy is helpful if you do not have enough cash on hand initially when buying the house, but will have more money later on. The term lengths for these types of agreements are shorter (1 – 5 years on average), which is when you would pay the seller off in full and take financial ownership of the property.
3. Tapping on Your Retirement Savings
It is not always recommended to withdraw your retirement savings before retirement times. According to most IRAs, you can get up to $10,000 to purchase a primary without being subjected to the typical 10% penalty fee or even paying any taxes. However, when you withdraw the amount, you need to act hastily. To lock in terms, you need to make the purchase within 120 days of withdrawal.
4. Crowdfunding
This is the newest financing option in town, allowing you to utilize money from the public. Some of the common crowdfunding platforms like Kickstarter and GoFundMe can allow you to raise funds for anything. But there are others designed only for real estate. Platforms like TheNest and Hatch My House are designed for real estate only. It’s simple to begin on this option — choose an appropriate site, create your online account, explain yourself to the people, wait for your funds to roll in.
Buying your first property can be an exhilarating milestone. However, choosing the best financing option can be a daunting task. That is why we outlined for you the above creative home financing option. So, once you’ve decided on the budget, choose one of the above methods, and you are good to go.
by: Alex Capozzolo
Alex Capozzolo is a partner of Kind House Buyers, a real estate developer based in Washington. He has been writing for the real estate industry for several years. Kind House Buyers focuses on large multi-family houses around Tacoma and Seattle.
