You can scarcely open up a local newspaper without reading about how hot the Bay Area real estate market is. That’s great news for home sellers but not so much for someone looking to exchange a rental agreement for a mortgage deed. As a daily money manager, I work with clients who long for homeownership and need help with getting their finances together.
Look for Financing in Unusual Places
There are some creative ways to finance a home purchase. The process may take a little more patience and legwork, but the benefits can dramatically outweigh the downside.
With tech start-ups and savvy financial institutions pushing the envelope of traditional mortgage lending processes, home buyers can win with streamlined applications. There are even alternative ways to access cash to help with down payments or creatively structured loans.
Let’s explore a few non-traditional home loan sources.
Online Alternative Lenders
You’ve probably heard the Rocket Mortgage commercials. They are a growing group of online mortgage originators that are wooing borrowers from traditional lenders. These alternative lenders are streamlining the mortgage application and funding process which appeals to Millennials and other tech-savvy consumers. Companies like Lenda can offer better rates and low (or no fees) compared to traditional bank lending. In this gig economy, freelancers and business owners can find it difficult when it comes to income documentation. There are lenders who don’t shy away from this growing market and are willing to work with you.
Equity Investors Help with Down Payments
There’s no argument that the Bay Area is a premier and expensive real estate market. To combat affordability, there’s a new type of firm willing to help cash-strapped buyers with good credit. For example, Unison lends as much as 10% of a down payment, helping prospective buyers hit that magical 20% market which avoids private mortgage insurance (PMI).
But here’s the catch. It’s not a loan. There are no interest rates or monthly payments. Lenders like Unison make their money by tapping into your home’s appreciation. They also share in the risk should the market dip like it did during the Great Recession.
Gift Registries & Crowdfunding Your Down Payment
As couples prepare to tie the knot, many are foregoing the wedding china and opting for something more practical — money towards a down payment. Rather than registering with retail stores, they use sites like MyRegistry, HoneyFund, and Zank You.
Other enterprising couples are using crowdfunding sites like HomeFundMe to feather their nest egg. Similar to Kickstarter and Indiegogo, it’s a crowdsourcing platform that organizing the fundraising campaign and sharing their home buying wish story via social media networks. But there’s a catch. HomeFundMe users must close on their home within 12 months of receiving their first gift.
Cash Back With Purchase
Buying a home isn’t a Groupon offer, so what’s the deal?! There are apps like Reali, which can eliminate the ~2.5-3% Realtor fee when representing a buyer. By using an app, buyers receive a cash-back refund at close which they can use toward the mortgage, upgrades, etc. You’ll interact with a Real Estate expert (a licensed real estate professional) via the Reali app. Even so, be prepared to get your identity, proof of funds, and pre-approval letter verified. There are also fees, including a flat fee for using the service that’s calculated on the home’s purchase price. Of course, there are still other escrow fees like city and county transfer taxes that may apply as well.
Get Your House In Order
If you’re serious about buying a home, you must have your finances in order. Fiscally Fit can help you organize your financial life, including preparing reports so you better understand your cash flow as well as pay your bills on time. Contact me for a complimentary 30-minute consultation.