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What is Creative Financing?
The normal way for potential buyers was to locate a home (which might be yours), ask the banks for financing, wait for approval, and then buy it from you.
However, sometimes interest rates would be so high that it will suck up most of the profits we take away from these deals.
This is where traditional financing institutions like banks fail to provide the value we need because they are either too restrictive/expensive, making them out of reach for the goals we want to achieve.
Thankfully, this is where creative financing comes in.
The term refers to the several unorthodox methods real estate investors use to obtain funding for deals. We can either use one or a combination of these methods to get deals done.
There are three particular creative financing options cash home buyers use:
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Lorraine Aguilar
Yuba City, California
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Fort Worth, TX
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Subject-To
A subject-to-mortgage is a method where the buyer (us) takes over the existing mortgage from your lending institution.
For example, let's say you're in a distressed situation – having trouble with mortgage payments – and looking to sell the home fast for cash.
However, you're short on time and closing could take weeks or months, something your credit score can’t afford.
Let's also say we stumbled upon your property and loved how it looks. In this case, we can "subject to" the existing mortgage. In this situation, we'll do the monthly mortgage payments for you in exchange for having the deed in our name.
Subject-to is a good method for you because you won't have to wait for a buyer to secure traditional bank loans. In this way, you’ll also avoid getting a stain on your credit score.
As for us, we don't have to go to the bank to get a new loan since we’re paying for yours instead. After we pay off the traditional mortgages, we can refinance, rent it out, or sell it off depending on our current goals.
Lease Option
A.K.A rent-to-own agreements, a lease option works by having a seller "lease" the property (it could be a primary residence or multiple rental properties) to a buyer with an "option" to buy it down the line– lease option!
This is arguably one of the easiest ways to own a home, but oftentimes the most difficult since very few sellers are interested in this option.
However, let's say a motivated seller pops up (which could be you), and we really love your property.
We then get to a meeting, discuss terms, and arrange a lease agreement. Here, we'll rent the property for a fixed term, and we'll buy it once that ends.
To offset any losses, we'll give you monthly rent payments (around 1-10%) for the exclusive rights to buy the property. This is the "option" part of this method. You can also expect us to shoulder the maintenance and repairs for the home.
Nice right? So, what's the catch? For us, we'll have a way to "test the waters" with the lease term. If we love it, we buy it. That's it.
Seller Financing
Also known as owner financing. In this strategy, we still don't involve the bank. Instead, you become the bank, and we're still the borrower.
Here we’ll negotiate terms, including the purchase price, interest rates, monthly payments, and down payment— still no bank involvement.
What you get here is the following:
- Instead of a lump sum payment, you get a consistent, long-term cash flow. You can also sell at above-market rates, but more importantly, you get greater flexibility compared to traditional methods.
- The best part of seller financing is you won’t have to deal with the long, drawn-out process of waiting for the buyer to secure mortgage loans, just like an all-cash offer from us.
- Plus if the buyer (us) defaults for any reason, you have the right to foreclose and reclaim the property. You can then resell it to another buyer.
That said, there are some risks to consider when doing seller financing. The biggest risk is buyer default, which could leave you in a situation where you’re stuck with the property again.
Additionally, market conditions could change, potentially impacting the value of the property or the buyer’s ability to pay.
This underscores the need for trustworthy, credible buyers who make it their #1 goal to honor their payment obligations.
Do I Need Creative Financing?
Honestly, only you can answer this question. It largely depends on your goals and the current situation in the real estate market. However, we can answer if this isn't for you.
If you need cash fast, this is not for you. An all-cash offer is more likely a viable option for you.
These are some of the creative financing methods real estate investors use when an all-cash offer isn't in your best interests. Other strategies do exist, but we'll most likely use these three the most.
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Fill out this form to get your no-obligation all cash offer started!
Take note that there's still no real estate agent fees, no closing costs, and no repairs when going through us.
If you have any questions or concerns, don't hesitate to contact us today, whether it’s about whether are cash home buyers are legit or just to verify that we're real people (which we are).
