What creative financing options can help you purchase a home?
In this article, we tap into the insights of CEOs and presidents to uncover their experiences with creative home financing. From shared-equity agreements to the innovative 80/10/10 mortgage, we explore seven unique approaches that could pave the way to your dream home. Discover how these strategies can help you overcome financial barriers and make homeownership a reality.
- Leverage Shared-Equity Agreements
- Utilize Business-Backed Loans
- Capitalize on Home Equity
- Explore ADU Financing Options
- Consider Seller Financing
- Try a Lease-to-Own Arrangement
- Use an 80/10/10 Mortgage
Leverage Shared-Equity Agreements
One creative financing option I used when purchasing my home was leveraging a shared-equity agreement. This option allowed me to partner with an investor, who covered a portion of the down payment in exchange for a share of the home’s appreciation when it was sold. This strategy reduced my upfront financial burden, allowing me to secure a property in a competitive market without needing to drain all my savings or take on a higher mortgage. It also kept my monthly payments more manageable, which was a big relief as I focused on growing my business at the time.
The key benefit was flexibility. Rather than taking out a larger loan with high-interest payments, this method reduced the financial pressure while still enabling me to become a homeowner. I would recommend it to others, especially entrepreneurs or first-time homebuyers who might need more financial flexibility in the early stages of their careers. However, it’s important to carefully assess the terms of the agreement and ensure you’re comfortable with sharing a portion of the future gains.
Shehar Yar, CEO, Software House
Utilize Business-Backed Loans
Using cash flow and business assets to guarantee a better rate than a conventional mortgage, I chose a business-backed loan to buy my house. Our family business has been going strong for over 90 years now, so using this stability and steady income, I was able to negotiate good conditions with the bank, including a lower interest rate and less down payment needed. Thanks to my company’s solid financial situation and flexible repayment choices that matched changes in cash flow, this strategy let me profit from reduced interest rates. It also enhanced my general cash flow, protecting personal savings and enabling greater reinvestment into my company.
I would advise other entrepreneurs running established businesses to consider this option. If your company shows good financial performance, it is especially beneficial since it helps to protect personal resources and gain better credit terms. It is crucial, therefore, to make sure the company can comfortably handle the extra financial investment without compromising its operations.
Mike Falahee, President, Marygrove Awnings
Capitalize on Home Equity
Utilizing a home-equity loan from an existing property. This allowed me to capitalize on the equity accumulated without having to disrupt my existing financial setup. As a tax and finance expert, I appreciated the strategic benefit of leveraging equity to minimize cash-flow disruption and optimize tax implications.
I recommend this approach, particularly for those with substantial equity in their homes, as it can offer a more favorable interest rate compared to unsecured loans. Always consider the tax advantages and potential deductions associated with home-equity loans to ensure you’re making a well-informed financial decision.
Dana Ronald, President, Tax Crisis Institute
Explore ADU Financing Options
As an ADU contractor for over 20 years, an innovative option I’ve used to finance projects is partnering with homeowners. For one build, a retired couple couldn’t afford an ADU outright but had extra space and wanted to age in place. We structured a deal where I covered construction costs to build a modest ADU, then shared rental income with the homeowners for 10 years. This provided them income and us a return, a win-win.
Another creative approach is using specialized ADU loans and grants. I helped a Portland client tap an SDC waiver granting $8K toward their ADU. In Vancouver, a homeowner used a USDA loan, financing 100% of their build. For suitable homeowners, these targeted programs can make an ADU possible.
Finally, for homeowners uncomfortable taking on debt, a simple prefab ADU can minimize costs. I used a modular kit for under $50K that took just weeks to install, netting over $1K in monthly rent. Keeping options affordable and sustainable, whether financing or building alternatives, opens ADUs to more people. With the right approach, ADUs are within reach.
Richard Garrett, Managing Member, RG Construction Services, LLC
Consider Seller Financing
One creative financing option I used was seller financing on my first home purchase. The benefits were huge for me as a first-time homebuyer—the seller accepted a lower down payment and interest rate than a traditional bank, and I avoided PMI and secured a fixed-rate mortgage. For the seller, they received monthly income and a good return on their investment. I would absolutely recommend this to other buyers, especially if banks aren’t an option.
When purchasing Lee & Cates Glass from my father, we also used seller financing. To avoid a huge tax bill from the sale, we structured it as an installment sale over 15 years. This allowed my father to transfer ownership while continuing to receive income, and I was able to buy at a lower price by forgoing traditional bank financing. The key is finding a seller willing to be flexible.
For those looking to sell, consider owner financing as an option. You’ll likely get a higher sale price, continue earning income, and may find a highly motivated buyer. Structure the terms carefully with an attorney to protect yourself, but this can be a win-win situation. The personal relationship formed through private financing is an added benefit.
Owning investment real estate is another creative option if you want to build wealth over time. I used private money from investors offering higher returns than the stock market to purchase strip malls and office buildings. Cash flow and tax benefits are excellent, and values have consistently increased over the years. While more complex, real estate provides stability and can generate strong returns if you find the right properties and financing.
Thomas Lee IV, President, Lee & Cates Glass
Try a Lease-to-Own Arrangement
A lease-to-own arrangement was the innovative finance solution I chose. In this kind of agreement, the seller receives monthly rent payments from the buyer for a predetermined amount of time, usually two to five years, with the option to buy the property at the conclusion of the lease. The fact that this choice allowed me to buy a house with little savings and no mortgage is its greatest advantage.
My lack of cash for a down payment was a major factor in my decision to go with this alternative. My down payment was far less than what I would have required for a conventional mortgage because I was able to negotiate a lower amount with the lease-to-own deal. I was able to buy a house without needing to save for a down payment for years because of this.
The ability to fix the house’s purchase price at the start of the lease period was another advantage of this choice. This implied that I would be able to buy the house at the agreed-upon price even if the property value rose during the ensuing years. Knowing that I wouldn’t have to worry about unexpected increases in the property’s value provided me a sense of stability and security.
In addition, I was paying less each month in rent than I would have for a mortgage. During the lease, I was able to accumulate savings and raise my credit score, which made it simpler for me to get approved for a mortgage when it came time to buy the house.
The fact that the monthly rent included a “rent credit,” or a portion of the rent that would be applied to the house’s purchase price, was one of the drawbacks of this option. I would forfeit this rent credit, though, if I chose at the end of the lease not to buy the house. I was prepared to accept this risk, but it’s crucial that anyone thinking about it carefully considers the benefits and drawbacks of each alternative.
I engaged a real estate attorney to analyze the lease-to-own agreement and make any required revisions to make sure it was advantageous and equitable for both sides. I was able to comprehend all of the terms and conditions of the agreement and felt more at ease as a result.
In conclusion, as a first-time homebuyer with little savings, the lease-to-own option was a fantastic compromise for me. It gave me the opportunity to buy my family a house and still have time to save for a down payment. I’m sure that this was the best choice for me because I carefully considered all the options and consulted with a real estate attorney.
Grace Chisom, Marketing Manager, Property and Sales Representative., British Columbia Property Buyers
Use an 80/10/10 Mortgage
When I was buying my first home, I decided to go with an 80/10/10 mortgage to avoid paying private mortgage insurance (PMI). This allowed me to put down just 10% as a down payment, finance 80% through a first mortgage, and 10% through a second mortgage. It worked well for me because the interest rate on the second mortgage was still reasonable, and I was able to get into the home I wanted without having to come up with a full 20% down payment.
The main benefit was avoiding PMI, which would have added hundreds of dollars to my monthly payment. Overall, I’d recommend considering this option to other first-time home-buyers who have limited funds for a down payment and want to avoid PMI.
Scott Bialek, Co-founder, Hurst Lending
