I saw this posted a while back and wanted to update it with a few more options. Creative Financing is all about negotiation. Here are some of the strategies I have personally used to build a small portfolio on the south coast of of Massachusetts.
Remember, the size of your downpayment shrinks dramatically if you can get away from Boston or any other major city. I chose Fall River, MA a city about an hour away from Boston, MA and on the border line of RI, about 30 minutes away from Providence.
1. If you served in the military you can use a VA loan to roll the down payment into the purchase price. Depending on your credit rating and lending history, some lenders will allow you to finance 100% of the purchase price. This will cause the interest rate and your payments to much higher than if you put money down. But, if you intend to sell the property quickly, it shouldn't have much of an effect on your profit margin.
2. Negotiate a separate installment plan for the down payment. Negotiate a separate installment plan for the down payment. Sometimes the seller will allow you to pay the down payment on a monthly basis.
3. Trade something other than cash. This could include land, a car, a boat, jewelry or valuable collectibles. Find out what they want and need. Maybe you have, or can get, just what they are looking for. You could also trade services such as carpentry, auto mechanics, painting, dental work and other services that you can do for the seller over time.
4. Trade houses with the seller. Many professional investors acquire homes with no money down by trading one property for another. In some cases, they trade one large property for several smaller rentals. Property trading is also a legal way to avoid the capital gains associated with selling a property.
5. Get the seller to transfer their mortgage to you. This is a common occurrence in foreclosures where the homeowner is eager to sell and is willing to work with the buyer. You can do the deal as an assignment of contract and efficiently close the sale.
6. Apply for a loan assistance program. Talk to your bank, many lending institutions offer programs that allow buyers to put little to no money down on real estate purchases.
7. Find an investment partner. Look for an investment partner who will put up some or all of the cash in an equity-sharing partnership. You make the monthly payments and the two of you split the eventual resale profits.
8. Find a property to rent-to-own or lease with an option to buy. If you have a lease-option for 5 years, at the end of that time, you will need to purchase the house and can get a bank loan then. Meanwhile, you can use the time to fix your credit and/or save for a down payment. Some contracts may put some or all of the rental amount towards the down payment.
9. Get owner financing or a land contract. Another option is to have the seller act as the bank. You make your payments, including interest, directly to the seller. Then after usually 3 to 5 years you make a lump sum payment to the seller. During this time, you should have enough equity to qualify for a standard bank loan.
10. Use a home equity line of credit from another property. If you have equity in another property, you could use that equity as a down payment on purchasing another investment property.
11. FHA (Federal Housing Authority) now allows the lenders to roll the down payment into the loan by charging an extra percent of interest on the loan. Even though the higher interest seems like an issue at first, if the building cashflows it can be the perfect way to get into the deal before you get your funds up.
12. Private Money (from friends, family or older investors looking mentor the next generation) for the 20% down payment, Hard money for the rest of the purchase and any renovations costs in most cases. This is timing sensitive, but as long as the home appraises and you've setup your private money for 2-3 years you can refinance into a traditional loan within a few months then get the cash-out refi fore the rest once the deed is aged 1-2 years as long as the building cashflows any commercial lender will refi it.
Cheers to your success!
I tried offering dental work to sellers when making an offer. Surprisingly they wouldn't go for that. I mean, how hard could it be? I stayed at a Holiday Inn Express last night.
That is some funny stuff right there! On a serious note I liked option 12 the best and if you use the right hard money lender you can put down as little as 5-10% and refi out in as little as 6 months into a traditional loan using the appreciation in value from your "sweat equiety" for much or all of the downpayment. Our borrowers, with our guidance do this all of the time and it is much less painfull then trading dental work! Let me know if I can assist further and best wishes to all
Jamie, the short answer is YES! Any Good Hard money lender will always work with newbies and coach them along as much as possible. The better you do, the better the lender does! What city / state are you looking in?
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