Many people might be afraid of considering alternative mortgage options in the aftermath of a turbulent housing market. After everything came to a head in 2007, people began to reconsider the best ways to purchase a house without using a traditional mortgage. There are a variety of safe and effective methods beyond a traditional mortgage that can help homebuyers achieve their dreams. Here are some creative mortgage considerations.
- Owner financing. The owner of the property can elect to finance the sale. They can transfer the title in exchange for a promissory note along with a deed of trust for the payment of the full purchase price of the property. Typically, this is only an option if the owner of the property owns it free and clear.
- Contract for deed. A similar arrangement also allows for owner financing, but the owner will retain the title until the purchase price of the house is paid in full. This is similar to a rent-to-own agreement — more on that below.
- Assume payments. A motivated buyer might consider an option to assume their current mortgage payments with the agreement that they are no longer in ownership of the property. The buyer then takes over the ownership of the mortgage, the remaining payments, and the title for the property.
- Lease options. This option, also known as rent-to-own, gives the buyer an opportunity to pay the property owner monthly rent with a portion of that amount going toward the purchase price of the home. At the end of the lease agreement, the buyer then has the option to buy the home at the lower price agreed upon when the lease was created.
- Finally, it is possible to buy a home without taking out a conventional home loan and, instead, borrowing from your own retirement funds. Most retirement accounts allow you to take out loans and pay yourself back at a lower interest rate than a conventional loan. However, it is important to note that a self-directed IRA can't be used to purchase your own home. But someone else, not a relative or business partner, can loan you the money from their IRA, which you can then pay back with agreed upon terms.
Consult an expert to better understand the options available outside of a traditional mortgage.