12 Unique Ways to Finance the Purchase of a Property
When you start thinking about buying a home, it’s easy to assume the financing part begins and ends with choosing a mortgage and making a down payment. In reality, there may be more paths available than you realize. The right one depends on several things—your finances, the property, your eligibility for certain programs, and sometimes even the seller’s situation. You don’t need to know which option is right for you before you begin. Knowing what possibilities exist is a good place to start.
1. CONVENTIONAL MORTGAGES
Conventional mortgages are offered by banks, credit unions, mortgage companies, and other lenders without being insured or guaranteed by a federal government agency. Many conventional loans are considered conforming loans because they meet standards established for mortgages that may be purchased by Fannie Mae or Freddie Mac. Loan terms, down payments, credit requirements, interest rates, and mortgage insurance requirements can vary, so comparing lenders and loan options can help you understand which combination may fit your circumstances best. View a Conventional Mortgage Calculator here.
2. JUMBO LOANS
If the home you’re considering is priced above the applicable conforming loan limit for that property and location, a jumbo loan may be an option. Because these mortgages fall outside conforming loan limits, lenders establish their own qualification standards, which may include stronger credit, income, reserve, or down payment requirements. In higher-priced markets, jumbo financing isn’t necessarily unusual—it may simply be the appropriate category for the home you want to purchase.
3. FHA LOANS
An FHA loan can be worth exploring if a lower down payment or more flexible qualifying standards would be helpful. These mortgages are insured by the Federal Housing Administration, and eligible borrowers may be able to purchase with as little as 3.5% down, depending on their qualifications. FHA loans also require mortgage insurance, so rather than looking only at the amount needed upfront, compare the total monthly payment and longer-term costs with other financing choices.
4. VA LOANS
If you’re an eligible veteran, active-duty service member, or qualifying surviving spouse, it’s important to understand the benefits that may be available through a VA-backed mortgage. Qualified borrowers may be able to purchase without a down payment and without monthly private mortgage insurance, although lenders still have qualification requirements and individual circumstances vary. A VA funding fee may apply unless you qualify for an exemption. If you have VA eligibility, make sure this option gets a fair comparison before deciding how you want to finance your home.
5. USDA LOANS
A USDA home loan is another possibility that buyers sometimes overlook. Qualified buyers purchasing eligible properties may have access to low- or no-down-payment financing. And despite the program’s name, an eligible home doesn’t necessarily need to be surrounded by farmland. USDA considers both geographic and household income requirements, so it may be worth checking rather than assuming you or the area where you want to live won’t qualify. You can begin by checking potential property eligibility on the USDA website, although final eligibility is determined through the program and lender.
6. ADJUSTABLE-RATE MORTGAGES
An adjustable-rate mortgage, or ARM, typically offers an interest rate that remains fixed for an initial period and then adjusts at specified intervals according to the loan terms. An attractive introductory rate can make an ARM worth considering, but the future possibilities matter just as much as the initial payment. Before choosing one, understand when the rate can change, how much it can adjust, and whether a higher future payment would still be manageable for you.
7. BRIDGE LOANS
Finding the home you want before selling the one you already own can create a timing problem. A bridge loan is one possible way to address it by providing short-term financing until your existing property is sold or longer-term financing is arranged. The convenience can be valuable, but bridge loans may carry higher rates, fees, equity requirements, and additional financial risk. Looking at both sides of the equation can help you determine whether solving the timing problem is worth the additional cost.
8. SELLER FINANCING
Occasionally, a seller may be willing and financially able to provide some or all of the financing rather than requiring the buyer to obtain the entire loan from a traditional lender. The parties may negotiate the interest rate, down payment, payment schedule, maturity date, and other terms. That flexibility can create an opportunity that wouldn’t otherwise exist, but seller financing also brings important legal, financial, tax, title, and documentation considerations. If this possibility arises, take the time to understand the arrangement and obtain appropriate professional guidance before committing to it.
9. CONSTRUCTION LOANS
If the home you want doesn’t exist yet, construction financing may provide the path to build it. Funds are typically released in stages, or “draws,” as construction milestones are completed. Some programs combine the construction loan and permanent mortgage into one financing arrangement, while others require separate permanent financing after the home is finished. There are more moving parts with a construction loan, so understanding the lender, builder, project, appraisal, and financing requirements early can make the process much easier to navigate.
10. RENOVATION LOANS
Sometimes you find a home with the location, layout, or character you want—but it needs work. Renovation financing may allow qualified buyers to finance both the purchase and eligible improvements rather than paying for all of the renovations separately after closing. FHA’s 203(k) program is one example, and other renovation programs may also be available. The property, proposed improvements, contractors, appraisal, and borrower may all need to meet specific requirements, but knowing this option exists can change how you look at homes that aren’t quite finished yet.
11. DOWN PAYMENT ASSISTANCE PROGRAMS
If saving enough for a down payment or closing costs is what seems to be standing between you and homeownership, don’t assume that obstacle ends the conversation. Depending on your location and qualifications, assistance may be available through state agencies, local governments, housing authorities, employers, nonprofits, or other organizations. Programs can take the form of grants, forgivable loans, deferred-payment loans, or other assistance. Each works differently, so understanding eligibility, repayment requirements, and how the assistance works with your primary mortgage is important.
12. ASSUMABLE MORTGAGES
Sometimes an attractive financing opportunity is already attached to the home. Certain existing mortgages may be assumable, allowing a qualified buyer to take over the seller’s loan subject to lender or program requirements. Some government-backed mortgages, including certain FHA and VA loans, may offer this possibility. If the existing mortgage carries an interest rate below current market rates, an assumption can be worth investigating. Keep in mind that approval is still required and you’ll need a plan for any difference between the seller’s remaining loan balance and the purchase price.
Twelve possibilities can sound like twelve decisions you suddenly have to make, but that isn’t the point. You don’t need to become a mortgage expert. You simply want to avoid overlooking an option that could make a meaningful difference. Your income, credit, available cash, current homeownership, military eligibility, the property you choose, and even where you’re buying can help narrow the possibilities considerably.
I can help you begin that process by asking the right questions and connecting you with experienced mortgage professionals who can explain the programs, compare the numbers, and help you understand the tradeoffs. You may discover that the path you expected is the right one—or that another path makes more sense. Either way, you’ll be making that decision because you understand your choices, not because you didn’t know you had them.
