12 Unique Ways to Finance the Purchase of a Property
When most people think about financing a home, they picture a traditional mortgage with a down payment and monthly payments for the next 15 or 30 years. That’s certainly one option—but it’s far from the only one. Depending on the property you’re buying, your finances, your eligibility, and even the seller’s situation, there may be financing strategies you haven’t considered. Here are 12 possibilities worth knowing about before deciding which approach may work best for you.
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, which is why it pays to compare more than one lender and loan option. View a Conventional Mortgage Calculator here.
2. JUMBO LOANS
Jumbo loans are mortgages that exceed the applicable conforming loan limit for the property and location. Because they fall outside those conforming limits, lenders establish their own qualification standards, which may include stronger credit, income, reserve, or down payment requirements. If you’re shopping in a higher-priced market, a jumbo loan may simply be the financing category that fits the price range rather than something unusual or exotic.
3. FHA LOANS
FHA loans are mortgages insured by the Federal Housing Administration and can be particularly helpful for buyers who may benefit from a lower down payment or more flexible qualifying standards. Eligible borrowers may be able to purchase with as little as 3.5% down, depending on their qualifications. FHA loans require mortgage insurance, so it’s important to compare the total monthly payment and long-term costs with other financing choices rather than focusing only on the down payment.
4. VA LOANS
For eligible veterans, active-duty service members, and certain surviving spouses, a VA-backed mortgage can offer significant advantages. 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 also apply unless the borrower qualifies for an exemption. If you’re eligible for VA benefits, this is an option worth exploring before deciding on another type of financing.
5. USDA LOANS
USDA home loans can provide another low- or no-down-payment opportunity for qualified buyers purchasing eligible properties. Despite the program’s name, an eligible property doesn’t necessarily have to be surrounded by farmland. USDA determines eligible geographic areas as well as household income requirements, so some buyers are surprised to discover that both they and the area where they want to live may qualify. You can check 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 begins with an interest rate that remains fixed for an initial period and then adjusts at specified intervals according to the terms of the loan. An ARM may offer an attractive initial rate, but borrowers should understand how and when that rate can change, what adjustment limits apply, and how a higher future payment would affect their budget. For the right buyer and circumstances, an ARM may be worth comparing with a traditional fixed-rate mortgage.
7. BRIDGE LOANS
What if you’ve found the home you want before you’ve sold the one you already own? A bridge loan is one possible way to cover that gap. These are generally short-term loans designed to provide temporary financing until another property is sold or longer-term financing is arranged. Rates, fees, equity requirements, and repayment terms can make bridge financing more expensive than a traditional mortgage, so the convenience needs to be weighed against the cost and risk.
8. SELLER FINANCING
In some transactions, the 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. Terms such as the interest rate, down payment, payment schedule, maturity date, and remedies for default are negotiated between the parties. Seller financing can create possibilities in the right situation, but it also involves important legal, financial, tax, title, and documentation considerations. Both parties should obtain appropriate professional guidance before entering into this type of arrangement.
9. CONSTRUCTION LOANS
If you’re building rather than buying an existing home, construction financing can provide funds as the project progresses. Instead of receiving the entire loan amount at once, money is typically released in stages, or “draws,” as construction milestones are completed. Some programs combine construction and permanent financing into a single loan, while others require the borrower to obtain separate permanent financing when construction is finished. Requirements vary considerably by lender, builder, project, and loan program.
10. RENOVATION LOANS
Sometimes the right house isn’t quite the right house yet. Renovation financing may allow qualified buyers to finance both the purchase of a property and eligible improvements. FHA’s 203(k) program is one example, and other renovation loan programs may also be available. This can open the door to homes that need updating or repairs while reducing the need to fund all of the improvements separately after closing. These programs have specific requirements, so the property, proposed work, contractor arrangements, appraisal, and borrower all need to qualify.
11. DOWN PAYMENT ASSISTANCE PROGRAMS
One of the biggest obstacles to buying a home can be accumulating the cash needed for the down payment and closing costs. Depending on where you live and your qualifications, state agencies, local governments, housing authorities, employers, nonprofits, or other organizations may offer assistance in the form of grants, forgivable loans, deferred-payment loans, or other programs. Eligibility requirements and repayment provisions vary, so it’s important to understand exactly how a particular program works and whether it can be combined with your primary mortgage.
12. ASSUMABLE MORTGAGES
Here’s an option many buyers never think to ask about: in certain circumstances, an existing mortgage may be assumable, allowing a qualified buyer to take over the seller’s loan subject to the lender or program requirements. Some government-backed mortgages, including certain FHA and VA loans, may be assumable. This can become especially interesting when the existing loan carries an interest rate below current market rates. However, the buyer still needs to qualify, approval is required, and there may be a substantial difference between the seller’s remaining loan balance and the home’s purchase price that must be addressed.
With this many possibilities, choosing a mortgage shouldn’t begin with the question, “What’s today’s rate?” A better starting point is, “Which financing options actually fit me?” The answer can depend on your income, credit, available cash, current homeownership, military eligibility, the property itself, how long you expect to own it, and even programs available where you’re buying.
You don’t have to sort through all of that alone. I work with experienced mortgage professionals who can explain the programs available, compare the numbers, and help you determine which options deserve a closer look. If you’re thinking about buying—even if you’re not sure yet how you’ll finance it—let me know. Sometimes discovering what’s possible is the first step toward discovering what you can buy.
