Home Financing Options You May Not Have Heard Of
Home Financing Options You May Not Have Heard Of
“There wouldn’t be a sky full of stars if we were all meant to wish on the same one.” —Frances Clark
If you're looking to buy a home, there's a strong probability that you've considered traditional financing; that is, you've looked into FHA or other bank-sponsored loans. You may have spoken to a loan officer and heard the run-down about mortgages, mortgage insurance, and credit checks. After all that, however, you may have left with a lingering sense of trepidation.
Perhaps you wonder if you can qualify for a conventional loan. Maybe you worry that it isn't enough to cover the home of your dreams. Fortunately, there are alternatives, ways to make home ownership a reality even if financing seems impossible.
To understand your unique financial situation, consult with your lender and/or financial advisor to get a better picture of what options may fit your needs.
Alternative Mortgage Lenders
Alternative mortgage lenders, or non-bank entities without customer deposits, are making an impressive dent on the loan industry. According to the Federal Reserve, alternative mortgage lenders account for 45 percent of all home loans in the United States. The largest banks that once had a stake in the $1.5 trillion mortgage industry are now running the other direction given lower profits and intimidating legal risks. Since they have backed away following the 2008 housing fiasco, alternative sources of funding have thrived.
Here's a look at some of them:
Online Mortgage Lenders
When time is of the essence, online mortgage lenders can prove to be a helpful resource. Quicken Loans, one such company, has swelled to become the country's second-largest mortgage lender. Notably, the company is looking to even score more clients with their "Rocket Mortgage" service that vows to make refinancing and full mortgage approvals possible in as little as eight minutes.
By collecting documentation electronically and utilizing automated algorithms, these online businesses are able to produce loan approvals at a remarkable speed. Loan Depot, another online mortgage lender, promises not only quick approval rates but also the claim that it won't try to steer you to any particular home loan over another.
Community home lenders
As large financial institutions shy away from risky home loans, community lenders are filling the gaps. Non-bank lenders contend with fewer federal regulations. They are often family-owned and locally operated, and they also tend to be more willing to work with buyers who have less-than-stellar credit histories. The trade-off, if one is to be noted, is that these companies rely on face-to-face and telephone interactions; most haven't resorted to a fully mobile interface at this point.
Credit unions also fall into this category, as do some non-bank entities, such as PennyMac. PennyMac has expanded to include loans in all 50 states.
Home Leasing Options
Just like with other merchandise, a home lease allows a buyer to rent a property for a set amount of time, with a portion of each month's rent going toward the purchase price of the home. One the lease has expired, the renter can choose to buy the property for the amount agreed upon initially.
While this option generally takes finding an owner that needs to sell in a hurry, it may be worth it if you struggle to qualify for a loan. In this situation, you can assume the payments of the owner, often with little or no down payment, and live in the home with the intention of paying off the house once you qualify.
3% Down Payment Loans
For many people, it's the down payment and closing costs that prove to be the biggest hurdle to homeownership. With that in mind, national programs are being designed without the need for substantial liquid assets. Administered by Fannie Mae and offered by banks and other financial institutions throughout the country, HomeReady™ requires a mere 3 percent down and allows alternative sources of income to qualify. This means that roommates, renters, and non-borrowing family members can be considered.
Similarly, Freddie Mac's Home Possible Advantage® requires a 3 percent down payment and offers reduced costs for mortgage insurance so that home ownership is more accessible.
Unknown to many prospective home buyers, many retirement accounts will allow you to borrow money from yourself (your retirement fund) and repay the funds over time with a lowered interest rate. It is important to understand all aspects of this option before using it, however.
Sometimes a seller is willing to finance the property outright. In exchange for a promissory note and deed of trust for the full price of the property, some owners are willing to transfer the title to a buyer. This is also called a seller carry-back loan.
Loans for Service Employees
Several different types of loans are available to assist the country's service workers, including pre-Kindergarten through 12th-grade teachers, firemen, police, and emergency personnel. Continuously tweaked to meet the needs of these groups, such loans provide discounted rates in order to provide for government employees.
Sponsored by the U.S. Department of Housing and Development, the Good Neighbor Next Door Program offers an impressive 50 percent discount off the full list price of a home so long as the buyer agrees to make the property his or her sole residence for at least 36 months. The caveat being that the home must be in a designated revitalization area.
Yes, the U.S. Department of Agriculture sponsors home loans. If you're eligible for a USDA loan, you'll typically enjoy rates better than you would with an FHA loan with no money down and the ability to finance closing costs. As an enticement to settle down and develop new parts of the country, the USDA provides extremely attractive loans to people who buy a home in designated rural areas. They use population data from the United States Census to determine what is a "rural" area, then allow buyers in those areas to buy homes with special financing. There are usually no pre-payment penalties, no "balloon" in the repayment schedule, or other non-traditional hiccups. It's really pretty straightforward once a buyer can get past a loan stemming from the agricultural department.
With the variety of financing options available, the prospect of qualifying for a loan seems a lot more attainable. If you're wondering if ownership can be a possibility, spend some time researching all of the different routes you can take to finance a home. You may be surprised by what you find.