Besides the two most common, traditional ways to buy a home, there are six additional groups of ways to buy a home creatively that we will be going over. They are:
- Owner Financing where the seller acts like the bank. While Owner Financing can be used as in a much more general way describing any situation where the seller is willing to participate in financing of the sale, for our discussion we define Owner Financing as the seller providing the majority of the financing where they do not have any underlying financing on the property themselves. If they have any underlying financing, we describe it as Wrap Financing.
- Wrap Financing where the seller acts like the bank but still has underlying financing on the property. The new financing the seller is offering to the buyer wraps the loan or loans that they still have on the property.
- Loan Assumption where the buyer formally, with permission, assumes responsibility for the loan with the original lender. There are two flavors of loan assumption that we will discuss: qualifying assumable where the buyer needs to qualify to assume the loan and non-qualifying assumable where the buyer does not need to qualify to assume the loan.
- The most commonly known and asked for strategy is the group described as Rent To Own or Lease To Own where the buyer leases the property for a period of time before ultimately buying the property. This is usually done with either a lease and an option (known as a Lease-Option) or with a lease and purchase contract (known as a Lease-Purchase).
- The penultimate of the 6 is the group of Agreement For Deed, Bond For Deed, Contract For Deed and Installment Land Contract. With these there is an agreement that describes what payments need to be made before the deed is transferred to the buyer. It is a form of owner financing where the seller holds on to ownership of the property until certain agreements have been kept by the buyer.
- And finally, buying a property “Subject To” the existing liens and financing where the seller deeds the property to the buyer and the buyer buys the property with the knowledge that there are existing liens and/or loans secured by the property. In the overwhelming majority of cases the buyer is agreeing to continue to make payments on the seller’s loans.
We will be covering these in more detail individually.