Low interest rates are encouraging many people to take the first step toward home ownership. Those who have never purchased a home may be unaware of how extensive the home buying process may become. Lenders request a variety of documents in order to verify employment, income, credit, and so forth.

Sadly, many individuals with hopes of purchasing their first home are unable to do so because they do not meet bank qualifications. Reasons for a mortgage denial may include poor credit, recent bankruptcy, foreclosure, and self-employment. Individuals who are denied a mortgage may become discouraged. However, there are several alternatives to a conventional bank mortgage. Many lending institutions require a 3% down payment, acceptable credit history, and low debt to income ratio. Fortunately, there are private investors and lenders who are willingly to offer non-conventional mortgages to those who are not ideal candidates for banks.

Creative financing a home mortgage includes a variety of options such as assuming a mortgage, buying a home with no money down, seller financing, and lease-options. Anyone can purchase a home using one of these methods regardless of credit or income. These methods make financing a home quick and easy. In some cases, the new home buyer may even save money.

Assumable Home Mortgages

Finding a home with an assumable mortgage is tricky and will require in-depth research. However, once you have located an assumable property, the benefits are endless. Those interested in assuming a home loan should work with a real estate agent or private investors. Real estate investors are more ideal because they are in the business of buying homes cheap, and selling them for a profit.

Thus, they are likely to have information on finding an assumable mortgage. Of course, if you are also in the market of assuming a mortgage for investment purposes, a real estate investor may not be as willing to offer assistance. On occasion a real estate agent may receive a property with an assumable mortgage. Those interested in purchasing a property should inform their agent of their interest in assuming a home. Only two types of mortgages that are assumable – adjustable rate and FHA loans.

Once an assumable property has been located, the buyer interested in the property should obtain and review loan papers. These papers will indicate the original loan amount, payment, and terms. The next step is to contact the lending institution and request an assumable loan package. The buyer will have to meet certain requirements prior to assuming a loan. Still, assumptions may be easier than applying for a new mortgage. Some lending institutions require that those assuming the home mortgage pay a minimum down payment. In most cases, the new mortgage holder will only need to prove income and have acceptable credit.

Assuming a mortgage is a more attractive feature when a buyer has a substantial amount of cash on hand. The new buyer will generally have to offer the seller the difference between the loan amount and the selling amount. For example, if a home is selling for $100,000 and the payoff for the loan is $80,000, the person assuming the loan will pay the seller $20,000 in equity, and continue to payoff the remaining balance of $80,000. There are instances when a person may assume a loan without paying equity to a seller. This situation is more common when the original home owner is a motivated seller or deceased.

Buying a Home with Zero Down

An additional reason why many people are unable to purchase their first home is because they do not have money for a down payment. Fortunately, there are several first time home buying programs and down payment assistance programs to help. Future home owners should contact local lenders and ask for information about “no money down home loans.” In most cases, home buyers are required to attend a home buying workshop before they are eligible to receive assistance. Real estate agents and online mortgage brokers also offer helpful information on receiving home loans with zero down

The downside to home loans with zero down is that many have income restrictions. This is great for lower income individuals, but not good for everyday hard working individuals. Nonetheless, mortgage brokers are generally willing to diligently search for loans for individuals with little or no money for a down payment. Those interested in buying a home with no money down should be aware that these home loans may carry a higher interest rate. Many lenders consider “no money down” candidates risky. Thus, they increase the interest rate of a loan to compensate. To avoid a higher interest rate, future home owners may consider adjusting their spending habits to save money. A down payment of as little as $2,000 can make a difference.

Seller Financing

Seller financing is the perfect alternative for individuals who are unable to receive traditional financing for a home loan. In this case, the seller acts as the lender for the property. Instead of making payments to the bank, the new owner will make payments directly to the seller. The buyer and seller will agree on financing terms which are normally shorter than a traditional mortgage.

At the end of the term, the buyer will likely owe a balloon payment for the property. Seller financing is great for individuals who are rebuilding their credit. They agree to seller financing for three or four years to allow time for credit improvement. Once their credit is acceptable, the buyer will finance the balloon payment with a traditional lending institution. They use the money to pay-off the original owner, and begin making regular payments to the bank.

Lease Options

Lease option is a contractual agreement between a seller and buyer that allows the buyer to rent a property as they save money for a down payment or while improving their credit. The buyer locks into a future purchase price and agrees to buy the property within a reasonable amount of time. Buyers and sellers should obtain a lease option agreement and establish the following terms:

• Future Purchase Price

• Maximum Length of the Agreement

• Monthly Rental Price

Some sellers place a clause in the lease option agreement requiring buyers to pay a penalty fee if they decide at the end of the term not to purchase the property. In addition, if a percentage of the buyers monthly rent was being held in an account to assist with their down payment, the seller has the right to refuse refunding this money. Lease options are ideal for both buyers and sellers. Prior to signing a lease option contract, both parties should have the forms reviewed by a real estate attorney.