If you are interested in buying a house in Colorado Springs, there are some key tips that you should learn that will help you with the purchase of your first home. For example, there are many other creative ways to buy a home other than traditional bank financing, which includes getting a 30 year fixed rate or adjustable rate mortgage with high interest rates, or low, depending on your credit worthiness. Many people simply do not have good credit scores in 2016, but they do have good income levels, so for these people they need to seek out other creative financing methods that will allow them to purchase a home without going through a traditional financial lending institution. Here at Wholesale Properties Colorado we pride ourselves in providing our rent to own clients with an affordable solution to buy a home without having the credit score required by traditional banks. Contact us at (719) 286-0053 for more information.
#1 – Seller Financing
The number one creative way to purchase a home, especially if you have bad credit, is to use owner financing, also known as seller financing. This is when the seller will act as the lender, and give you a loan amount with interest on the property, that you make payments on monthly. Usually the buyer will attempt to refinance the loan after 1 or 2 years through a traditional lending institution, once their credit has improved and they are in a better position to financially to make the purchase. Seller financing usually only occurs on properties that are owned free and clear, but it is also possible to “wrap” the existing mortgage with the new loan, but if there is an existing loan in place then you may want to consider doing a standard “lease option” contract, which we will discuss in step 3.
#2 – Subject To
This is also a great one that not many conventional home buyers are aware of. A “sub 2” is when you purchase a property “subject to” the existing mortgage, which basically means you are going to take over the mortgage payments on the property, and then you might structure the deal where the remaining balance of the mortgage is to be paid off in full within a certain time frame, usually 1 – 2 years. A common example of one of these types of transactions is when an investor would go in and buy a property that is in pre-foreclosure from a seller, and buy it “subject to” the existing mortgage, meaning they will catch up the payments and take over the mortgage, and then refinance down the road and then pay it off in full, at which time the seller who was facing foreclosure would finally receive their payoff, if there was a difference left over after the transaction has been completed, which there usually is.
#3 – Lease Option
The third option for buying a home if you don’t have enough credit to get a traditional bank loan is to use a lease option. Typically these types of setups will have three different documents: the lease option rental agreement, the purchase and sale agreement, and the addendum which ties the two together. First you will sign the lease option, which states clearly the terms of the rent, including the monthly payment, security deposit, and other related info. Then the next piece of paperwork to sign is the purchase and sale agreement, which will typically have an earnest money deposit on the home to balance the risk of the seller. Sometimes the seller will still have an existing mortgage in place, and what the contract will in essence do is “wrap” these two mortgages together, so when the buyer finally exercises their purchase option, the pre-existing mortgage will be paid off in full as the new owner refinances the mortgage with a standard bank loan, since they now will likely have a higher credit score and can also provide the documentation in the form of cancelled checks to show that they have been making payments on their rental agreement as outlined in the standard lease contract.
Summary Of What You Just Learned
So those are the three best creative financing methods for purchasing a home when you don’t have the credit requirements for a traditional loan. You will need a significant down payment in order to manage the existing owner’s risk, but these methods will enable you to land a house that you otherwise would not be able to qualify for, and then once you show the banks that you have been making consistent payments, you will be able to refinance the property and get the traditional loan and the existing seller can be paid off in full for the property. These creative financing methods are often a win-win scenario, where the seller gets to sell his home that would not otherwise sell, and gets a nice down payment, and the buyer gets to purchase a home that they would not otherwise qualify for, so both parties end up benefiting.
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