Creating Financing is described as any other way of financing a mortgage without using conventional loans.
This type of financing is typically used when a buyer has damaged credit, lack of money or in tight credit times.
Some examples of creative financing would be to use a Hard Money Lender (Lender that specializes in hard to lend credit situations, usually carries a much higher interest rate and fees) or will use seller financing.
Seller Financing Options: 1)Seller Carry Back - Seller agrees to carry a note for purchase of home.
This method is used when the seller owns home free and clear.
They benefit from receiving a monthly payment.
The note term is usually due in between 1-5 years at which time the buyer would have the option of either paying off the note or finding another type of financing.
2)Subject-to - 2nd subject of existing first mortgage.
This method is used to finance a home very quickly and allows the buyer to purchase the home without a down payment.
The seller agrees to transfer the title of the home to the buyer but retains the mortgage payment in the seller's name while the buyer makes the existing mortgage payments.
This is a very temporary solution due to the lack of comfort the seller will have with retaining the mortgage in their name for an extended period of time.
3)Seller 2nd - Seller takes back a second mortgage.
A very commonly used mortgage option.
The seller agrees to take out a 2nd mortgage to help the buyer cover all or part of the down payment.
Note** The buyer must check with the mortgage company to insure that a 2nd mortgage can be attached.
4)Lease Option - Buyer leases home with option to buy at a further date in time with using little or no money down.
This option is usually exercised for 1-3 years which provides the buyer the opportunity to improve credit or search for other financing options.
In some instances the buyer can arrange to have a portion of their lease payments put towards the down payment of the home.
Whatever options the buyer decides to exercise, it is always a good practice to research and consult with an attorney or escrow agent.