Preparing for traditional mortgage financing is not a difficult process. First, check your credit report for errors and access your credit score. Next, find out the loan amount you could qualify for; a quick trip to the bank can accomplish this. Gather the required documents and submit them for pre-qualification. Then, find a great home within your price guidelines and make the best deal you can. Your financial life will now be highly scrutinized, but at the end of the process, you will be a homeowner!
This will be great if you can get traditional financing. But what if you can’t? Many different types of people have difficulty getting financing for the place they want to call home. And when that happens, non-traditional mortgage financing might be able to help you get the place you want.
One common method is “contract for deed financing”. Contract for deed is often used when the buyer cannot qualify for a traditional bank mortgage and this can happen in many instances. But why would you use contract for deed financing?
The Advantages of Contract for Deed
The advantages of contract for deed include:
- No bank scrutiny.
- More flexible terms.
- Personalized interaction with the property owner.
- Bad credit is not necessarily a problem.
- Quicker turnaround time.
- Appraisals may not be necessary.
- Property improvements can be made.
- There are ownership tax benefits for the buyer.
- Contract for deed is a great way to build credit.
- No prepayment penalties.
So, if there are so many advantages, who should utilize this method?
1. A Person With Bad Credit
If you have bad credit, your options are limited. Levies, liens, garnishments, student loans defaults and judgments can quickly close the traditional financing door.
2. A Small Business Owner
Small business owners “write-off” a lot of stuff. Items that others would have to pay for personally like auto leases, fuel, travel, and many others can be deducted from business revenue. This, however, can leave the small business owner with a smaller income. Sometimes the bank doesn’t care if you say, “I lease my car through my business at $400 a month so that means I make $4800 a year more than I show.” Traditional mortgage lenders want provable income, and they set their own standards for what that is.
3. A Person With Previous Foreclosure
Yes, you can get a mortgage with a previous foreclosure, but your credit has to be perfect after the bad event occurred. Most people with foreclosures on their credit reports will not have turned their problems around so cleanly.
4. A Person Who Claimed Bankruptcy
Bankruptcy was once regarded as a financial death sentence. You can rise from the dead, but it takes years before traditional mortgage lenders will consider you as a good risk.
5. A Person Who Lost A Job
If you lose your job, you have no income. No income = no loan. Even if you quickly got a new job, many lenders want to see at least a year of income history. So, if you lost your job, were out of work for three months, you may need 12 months of bank statements showing your new income stream.
6. A Person With High Debt: Income Ratios
All lenders seriously consider a borrower’s debt and income in considering an application. However, not every borrower has a perfect debt to income ratio, and some ratios are down-right hard to deal with. If you fall into one of these categories, you might consider using a contract for deed method of financing.
7. A Person With Immigration Issues
Immigrants and minorities are a huge piece of the home buying puzzle. That said, many face challenges when getting a mortgage and approval from lenders. The path to ownership isn’t always easy for immigrants, especially with language barriers, the lengthy approval process, and qualification. That’s why many immigrants are choosing to use non-traditional methods. It makes sense and allows for much more flexibility. Minority homebuyers face many of these same issues throughout the U.S.
In Closing … Do Your Research
Overall, non-traditional financing can be a blessing for many prospective buyers who have issues getting traditional financing. You might be surprised to discover that you don’t always have to go through traditional banks to get the funding for your home purchase.
There are more options than ever before when it comes to getting the money you need to buy a home. Whether you’re trying to buy a home with bad credit or you’re otherwise unable or unwilling to get a conventional mortgage, there are plenty of non-traditional options available, and a contract for deed is one of the best.
If you do decide to pursue non-traditional mortgage financing, do your research, consider your options and non-traditional mortgage lenders and get the help of a professional before closing any deal.