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Alongside patiently looking through listings and going to showings to find the right property for you, securing financing to purchase that property is another one of the major hurdles you’ll encounter as a prospective homebuyer. To aid you in expanding your possible financing avenues, let’s see what San Francisco homeowners need to know about creative financing options.
Loan Programs
Before we set foot into the creative financing options, it’s a good idea to start with the more traditional method: state and federal loan programs.
These programs were created to fill specific roles and meet the needs of the average hopeful buyer. Not only can they be of great help to qualifying buyers but they are also often overlooked despite the great assistance they provide.
There are three big federal loan programs intended for specific purposes: FHA, USDA, and VA loans. Each of these loan types come with their own set of requirements and stipulations, so it’s a good idea to thoroughly investigate each of them before assuming you’ll be accepted into a given program and base your number crunching off of that.
These loans provide a grab bag of benefits, such as reduced or no down payment, lowered interest rates, and the elimination of Private Mortgage Insurance.
FHA loans target first-time home buyers to ease their entrance into the real estate market, USDA loans are made to encourage development in rural communities, and VA loans offer outstanding loan benefits to qualifying military veterans and active service persons. You can contact your county’s Federal Housing Administration office or visit their website at https://fha.gov/ to inquire about the qualifications for these programs and be pointed in the right direction regarding any further steps in the application process.
For example, there might be bank program that might offer 5% down payment forgiveness on a home loan or even a state of California program that offer 10% loan forgiveness after 5 years. These program change every year depending on budget and funding. So it is best to check with a qualified professional
Seller Financing
Branching out toward the more creative financing options, there is always the potential for a seller to consider financing you to purchase their home.
From the buyer’s perspective, this operates similar to your regular home loan, but the finances are given to you by the property’s seller. This obviously involves a lot of trust on the part of the seller, and we would recommend bringing in an attorney experienced in real estate law.
An attorney should be seen as a necessity here to draw up a binding contract that affords legal protections for both the buyer and seller. This then allows the buyer and seller to negotiate the terms of the contract and come to an amicable agreement moving forward.
Imagine the current homeowner has 20 years fixed interest rate at 3% left on the loan. The current interest rate is 7%. The seller could charge a 6% interest rate on the loan to the buyer. This results in a lower interest rate for the buyer and the seller gets a 6% interest rate when banks are offering 3%. Win win for both parties.
Seek Out Crowdfunding
In this day and age, seeking outside financial investment has become more normalized for all kinds of expenses. This could include the possibility of using crowdfunding to subsidize portions of your home financing.
It must be noted that depending on crowdfunding for home loan financing is a very long shot, so utilizing the crowdfunding gains as a supplement to other financing methods should be seen as a best-case scenario. You’ll also want to ensure that you are following any terms laid out by the crowdfunding site to avoid any nasty legal entanglements.
One of the platforms is Fractional. Fractional is a platform made for friends who want to buy Real Estate together but it is possible to raise funds from investors who are looking to buy part equity of houses.
Rent to Own
A final one of our creative financing options as a way to finance your home purchase is a rent-to-own agreement with the seller. This would turn your home into a temporary rental property with the seller acting as your landlord.
Just like our preceding ideas, securing the agreement in a legally binding contract is the best way of working out the details and keeping everything above board. In a rent-to-own situation, you’ll be making regular payments to the seller with either the end goal being that you pay off the loan within the specified period of time or intend to purchase the home for a specified amount after a certain period of time.
Guidance Through Creative Financing Options in San Francisco
If you’re looking for help finding creative financing options to buy a home in San Francisco, contact me today at 415-830-1423!
