Creative Ways to Finance Your New Home

Guest Blog By: Lisa Roberts

Buying your first home is a big undertaking – both emotionally and financially. But, if you have a desire to settle in and already have a steady income every month, do not let anything stop you from making this big decision. After all, you have to make it one day – so why not today? However, just as there are different homes for different people, there are also different ways to finance a new home. What may work for one person may not necessarily work for the other.

The good news is that there are tons of ways you can finance your new home; you just have to be creative and resourceful. However, if creativity and resourcefulness are not your strong suits, do not worry – we’ve got you covered. Here is a list of creative ways to finance your home.

Conventional Mortgage

We cannot talk about financing a home without mentioning the conventional mortgage. Of course, this is not a creative financing tool, but it is the most common option people choose. So, let us give you some vital information if you choose a conventional mortgage when making your first home purchase. 

Namely, you have to go to the bank or a credit union to apply for a conventional mortgage. Both of them will require you to have a debt-to-income ratio lower than 50% and a credit score of at least 620! But, you will also have to prepare your budget for many out-of-pocket costs – down payment, closing cost, insurance, etc. So, be ready for that! Overall, conventional mortgages are a good financing tool for homebuyers with a strong credit score, good employment history, and preferably significant savings.

A Government-Issued Plan

People who do not have a high credit score cannot apply for a mortgage at all. But, they can apply for a government-issued plan. Some of those plans are backed by the following:

• Federal Housing Administration (FHA)
• Department of Veteran Affairs (VA)
• Department of Agriculture (USDA)

These are, of course, the most common ones you can apply for. But, they are not the only ones. Namely, different state and local governments offer different homebuyer programs. For instance, some programs offer help with the down payment, closing costs, tax credits, and some even assist with discounted rates. It does not hurt to ask around, especially if this is your first time doing this! Buying your first house is not easy or cheap – so be sure to ask for help wherever and whenever you can!

Seller Financing

Many people have never even heard about the so-called seller financing. However, it is one of the most creative ways to finance your new home. Let us explain. 

Seller financing is when you make a formal agreement with the seller regarding the payment of the home. So, instead of giving money to the bank (mortgage) each month, you are actually giving that money to the seller. Of course, not every seller is willing to do this, but it does not hurt to ask around, especially if you cannot get approved for a mortgage or any of the previously mentioned programs.

However, we would be lying if we said that there isn’t a catch. The problem with seller financing is that it may come with enormous interest rates, a hefty down payment, or even a requirement to pay a large sum of money in the near future. Thus, if you decide to go with this option, and both you and the seller are on the same page, be sure to read the contract carefully and thoroughly. 

Crowdfunding Site

If you do not have a lot of money but are surrounded by people who do (friends, family members, etc.), there is a possibility they could lend you or even gift you the money you need for this purchase. But, that is not all. If you are in a bad situation, you can ask for money from a donor or even an investor. Who knows, maybe somebody with deep pockets will be willing to help you out. The best way to reach those people is to share your story on crowdfunding sites. Of course, you cannot simply write ‘Hey, I need some money to buy a home’, no. You need to be honest and humble and share a story that truly depicts your situation. The right people will appreciate that, and maybe, soon, you will be able to make an offer on a home you want to buy. 

Rent to Own

We know that you are here to find out about creative ways to finance your new home, not rent it. But, hear us out. Rent-to-own is an excellent option if you do not have the money to buy a home you like just yet. What you can do is make an arrangement with the owner and live in their home as a tenant while you save enough money or become eligible for a loan. Some sellers may allow you to pay a certain amount of money (for the home’s purchase) with the rent you pay each month. However, this financial tool, like all others, also comes with a catch. To buy a home like this, you will have to pay the so-called option money. That is usually between 2 and 8% of the home’s total value. Moreover, you should know that if you change your mind sometime in the future, you will lose both your option money and any purchase credit you have paid upfront after signing a contract. 

Photos used:

https://www.pexels.com/photo/wallet-with-pile-of-american-paper-dollars-4386178/

https://www.pexels.com/photo/person-holding-silver-key-8293778/

https://www.pexels.com/photo/crop-businessman-giving-contract-to-woman-to-sign-3760067/

https://www.pexels.com/photo/black-and-white-checkered-paper-bag-8386754/