Alternative Sources of Real Estate Financing

Many people with bad credit mistakenly believe that they must use alternative lenders when securing financing for a home mortgage. These lenders are notoriously expensive options, because they charge very high interest rates. But there are quite a few ways to come up with money when you cannot even manage to come up with the down payment. Here are three ways to get into the home you want.

First, ask your family. If you have family that is willing to help, you can ask them for the money. This is a risky option because it assumes that they have the cash to loan you, and it can also put a tremendous strain on your relationship. Make sure you offer to sign legal documents stating that you owe them the full amount, plus a reasonable portion for interest. It would also be a good idea to speak with a lawyer and see about any potential tax problems that could arise from them loaning the money to you.

Second, find a home that offers owner financing. This typically allows you to live in a house and make payments. Within three years, you will need to find your own source of financing, but this allows you more time to find an acceptable source of financing. If you do not find your own source of financing within three years, the ownership of the house stays with the person you were purchasing from, and you will have to move. Many home owners will consider this as an option because it allows them to charge rent that is typically higher than they could normally get for their property. Also, if you do not purchase it, they can put it back on the market and keep everything you have already paid. This is an attractive solution for buyers because it allows you to "test-drive" a home and see whether you like living there. Sure, the payments are a little higher, but you can walk away if you are not happy with the deal.

Third, offer to trade. Naturally, this option only works if you already have your own home. For whatever reason, your current home may be difficult to sell, or the market itself may be sluggish. This option also assumes that you find a seller who wants to own your home. But if you can convince someone to trade homes with you, you may be able to walk into a new home owing practically nothing. You will definitely want to get an inspection and make sure you are getting a good home, but the value itself should not be the sole deciding factor. The home you are moving to may be smaller or not have as many features, but it could be in a more convenient area.

Whatever option you choose, make sure that you can truly afford the payments. The traditional loans typically require certain things because they want to make sure you can afford the payments, and that you will not default on the loan. The same is true with alternative methods of acquiring your new home, but you will have to make sure that you can afford it all on your own. Using these methods and a little diligence can help you find the perfect home for your needs, on your terms.