When it comes to buying a residential property without qualifying, it doesn't matter whether you are a real estate investor or you're just looking for a place to call home.
Creative buying strategies have long been the domain of real estate investors, but consumers with credit challenges, including even bankruptcy or foreclosure, can use these same strategies to purchase a home and avoid waiting years for credit scores to improve. This is because there are lots of ways to buy a home creatively, that allow you to avoid qualifying for a traditional mortgage. In fact, under some circumstances, it may even be cheaper than getting one of those government insured mortgages.
Over the years, I've worked with dozens of real estate investors, and seen hundreds of creative deals get done. And I've also purchased my own home creatively on two occasions. I did use an FHA loan to buy my very first home, back before I became involved in the real estate industry. But knowing what I know now, I'll never make that mistake again. Since that time, I've purchased investment properties and a personal residence using creative techniques that allowed me to avoid qualifying for a mortgage. You can too.
There are several commonly used methods for purchasing residential properties without qualifying Here are a few of the most common:
1. Subject to the existing mortgage:
This is basically taking over the seller's existing mortgage payments. Believe it or not, for a variety of reasons, sellers may be willing to leave their current mortgage in their name, hand you their payment book, and move away.
I once bought a property from a young woman who was getting married and moving out of state. She had listed the property with an agent, but failed to get any offers. Then she tried selling "by owner" with no luck. She found our ad in the paper and called us, because time was running out. She was due to get married in two weeks. She needed to sell NOW.
This was not a distressed sale, she was current on her mortgage and the house was actually in very good, livable condition. It just needed some paint and carpet and a bit of updating.
The seller wanted some cash to help with moving expenses and to get ready for the wedding. I offered her $5,000, if she would allow me to take over her existing mortgage payments. We agreed that I would take over her existing mortgage for up to two years. By then I needed to either sell the property or get another loan and pay off her mortgage. I resold that house for a cash profit four months later, after giving the home a facelift. On this deal, I was the investor, but an owner-occupant could have done the same thing. And once you've been in your home for a while, it's usually much easier to refinance the property and pay off the seller's original loan.
2. Old fashioned seller financing:
Another time was much more personal. My husband had become seriously ill. I was in real estate by then, working for commissions as an agent. Fortunately I had been in the industry for a few years and had some knowledge of creative buying techniques. With some cash in hand, I found a property in a nice section of north Atlanta. It was a very stressful time for me and I did not want the hassles of qualifying for a mortgage. Plus, working for commissions only would have made qualifying more difficult.
I told the seller up front that I did not want to have to qualify for a new mortgage. The seller owned the property free and clear. He agreed to finance the sale for me, and we agreed to payment terms, then closed with a local attorney very quickly.
In this case, it was not "subject-to the existing mortgage", because there was no existing mortgage. The seller was willing to finance it himself because he could also earn interest on his money. He was not distressed either. I simply asked, and he said "yes". I did have about $5,000 to offer for a down payment. That also helped seal the deal.
In a case where I want to try and get a seller to finance the deal I like to use a "net to seller" statement to show them how much extra income they can earn in interest, if they finance the property themselves. Many sellers need this extra income, but are not aware of creative financing strategies. This was as simple as showing the seller how the deal could benefit him.
I've also sold investment property this way. It's a great tool whether you are a buyer, or a seller who wants more income.
3. Lease With An Option to Buy:
This is probably the most common of all creative techniques for getting into a property without qualifying. I found a property that was a small commercial facility that was ideal for a passive income business model that I had in mind.
I went to the seller, who, as luck would have it, was also a real estate investor himself. Turned out he had bought the property at a foreclosure auction. When I discovered this property, while driving around one day, it was sitting vacant. It had a "for sale or rent" sign on it.
I contacted the owner and told him that I knew what I wanted to do with the property. He allowed me to lease the property with an option to buy. Later on, after I had the business up and running, I obtained a 100% loan from a private individual who was looking for more return on their retirement funds, and purchased the property.
I still have that property today. It generates passive income month after month. I'll probably never sell that one. Once I get it paid off, it will be a money printing machine.
Some people think that creative real estate investing means that you are taking advantage of distressed sellers who are under duress. I don't work that way. In all of the above cases, I was attempting to give the seller what they needed or wanted, and show them how the deal could benefit them. As a result, I was able to avoid the hassle and expense of qualifying for a traditional mortgage, and the deal was a win-win for the buyer and the seller.
Donna S. Robinson is a real estate investor, author and investing coach located in Atlanta, GA. Follow her on twitter at donnaconsults, Facebook.com/RealtyBizConsulting and watch her videos on youtube. Her latest book, Basics of Real Estate Investing, is now available for Kindle on Amazon.com The book includes several case studies on creative buying and selling strategies.