10 Mortgage Financing Options You Didn’t Know Existed
By Paul Esajian on August 14, 2015
There are a lot more financing options for homebuyers and real estate investors than most are aware of. So what are they, and how can they help?
While it still may not be quite as easy to get a loan funded as it was in 2003, many might be surprised at just how many exotic loan features have made a comeback, as well as how many creative new mortgage loan and financing options there are. For those willing to spend a couple moments researching their options, there can be great financial rewards. Here are 10 to consider for your business:
1. 100% Financing: Rumors that homebuyers have to put down a 20% to get into a home today are just malicious misconceptions. The concept is keeping many would-be homebuyers on the sidelines, and allowing others to scoop up the deals. Those on the bench are going to be relegated to renting, or paying a lot more for the same home. VA home loans and USDA loans are two of the most prominent 100% financing options. Buyers can even incorporate a lot of their closing costs into these loans, and may be able to use them to acquire multi-unit properties. If you live in one unit of a duplex, triplex, or four-unit property, your renters in the other units might pay for your whole mortgage, and actually provide you extra income each month. FHA loans also come with very low down payment requirements.
2. Transactional Funding: Transactional funding has really only become available to the public and wider pool of real estate investors since the crisis. Many consider this one of the best things to have come out of the crisis. Transactional funding offers 100% financing for real estate wholesalers who are flipping houses within a very short period of time. More often than not, no credit, income, or asset check is needed.
3. FHA 203 Loans: There are actually FHA 203k full, 203k streamline, and 203b loans available. These loans enable homebuyers to simultaneously borrow the money to purchase and fund home repairs. This can even go up to 110% of the after repair value of a home. While these programs can be notoriously trickier than they are often made out to be, they can certainly be worth investigating. They are not only a great tool for buyers, but also for real estate investors selling properties that could use upgrades.
4. Stated Income Mortgage Loans: Stated income home loans have steadily made a comeback. There will always be skeptics of programs like this, but they do have a great and essential part in the market. These are not to be used as ‘liar’s loans.’ They should be used when real income cannot be documented, such as for self-employed borrowers. Then there are also hybrid bank statement programs that go off of deposits, not W2s or tax returns.
5. Non-Traditional Credit Loans: One of the biggest challenges many face in getting a home loan is not their credit score, or payment history, but a lack of credit history. It doesn’t matter if you have an 800 credit score, and make $1 million a year, if you only have two credit cards. You still might not qualify for some mortgage programs. Those that accept non-traditional credit may give you credit for items like paying cell phone bills, utilities, rent, and business loans on time.
6. Down Payment Assistance: Down payment assistance grants and loans are back. And many more lenders are accepting them. Combined with great loans, these can be used to get a home with no down payment, or closing costs out of pocket, and can even create instant equity to the tune of tens of thousands of dollars, or more.
7. Non-Recourse Loans: Non-recourse loans mean that individual borrowers are not personally liable if things go bad and they cannot pay. So if the market or your business ever took a major dip, you theoretically wouldn’t personally be on the hook. Your personal credit wouldn’t take a hit, and you wouldn’t be personally involved in a foreclosure, bankruptcy, or judgement.
8. ‘No Doc’ Business Loans: There are lenders popping up which effectively almost offer what used to be known as No Doc loans. They focus on the asset and income potential of the property, and less, if at all on the income of the individual investor.
9. Social Finance: Social finance is really taking off. This includes social finance portals, peer to peer lending sites, and even crowdfunding. It combines the finances of the crowd to provide attractive borrowing rates and terms for loans that banks won’t do. At the same time it offers individual lenders the chance to participate in real estate profits passively.
10. Multi-Currency Loans: These may be tough to find onshore in the US, but they have been popular with the wealthy overseas for years. They enable investors and high end borrowers to borrow in different currencies. This has the potential to make real estate much cheaper, and offers diversification over time. In one day the Telegraph reports that a simply currency fluctuation in the Swiss Franc effectively dropped the price of prime London property for buyers and owners buy more than a couple hundred thousand dollars.