Many people have written get-rich-quick books and courses on creative financing. We will not be discussing those techniques here.
The creative financing techniques here are packages offered by financial institutions as a normal part of their business. If you can qualify for them, they may help you to buy a house that may have been out of reach otherwise.
In some cases the interest rate may be higher or other conditions may apply. It is important to
consult a mortgage broker
to review all the terms and conditions to see which plan you can fit into. Several banks may offer the same type of program, but their conditions will be different. This is good news. If you like a particular plan, if you don't fit into one bank's criteria, you may get approved elsewhere.
This creative financing technique is relatively new for finacial institutions. As an extention of the 5% downpayment plan, many banks are now offering a 5% cash back with the well known 5% downpayment plan. If you have 1.5% of the purchase price to cover closing costs, you can now buy a house with no downpayment.
You would put in an offer to purchase with a very small deposit. On the closing date, the bank will issue 95% of the value of the home plus 5% as a cash back. The realtor fees can be paid from this cash-back. You would cover the legal fees and any other costs needed to complete the deal.
No Proof Of Income
This creative financing plan applies to self employed people. Self employed people often face the problem that they don't show a lot of income in their tax returns because of all the tax write-offs they get. They may have more than enough real cash-flow to qualify, but unfortunately, they can't prove it to the financial institution.
Banks use tax returns as the main way of confirming income. When there is not enough income showing on the bottom line of a tax return, some banks will consider using some of the write-offs from the financial statements as real income. However, in many cases there is still not enough income to buy the big houses that self employed people know they can afford.
Several banks have recognized this dilemma. In response, they have waived the requirement for proof of income provided the applicant can prove they are self employed and they have good credit. On a no-proof-of-income basis it is possible to get as much as 85% of the value of the house approved for a mortgage.
Borrow Your Downpayment
Recently CMHC introduced a creative financing technique
CMHC introduced a creative financing technique
that will help a lot of people. They have introduced new programs where people can borrow their downpayment from a financial institution or private lender. The realtor or the seller are not allowed to lend money for the downpayment because it gives them an incentive to inflate the purchase price of the house beyond fair market value. The minimum mothly payments must be included in the total debt load. Proof of minimum monthly payment may be required, depending on the rest of the application.
This creative financing technique is a risky proposition from the bank's point of view. They feel that if the buyer does not have their own money involved in the form of a downpayment, they would be inclined to default on their payments more easily. What they don't understand is that people are very possessive about their own house. They would not let it get into any kind of trouble unless it was really an emergency.
Excellent credit history, good job stability and 1.5% of the purchase price is required for closing costs. Other conditions may apply. Consult your
Cash Back Financing
When a person has less than 5% downpayment plus 1.5% for closing costs, a cash-back mortgage can come in handy as a good creative financing technique. If you go for the 5% cash back no downpayment plan you have to pay a higher interest rate. Unfortunately, this high rate often disqualifies borrowers from being able to buy the house they want because it increases their payments too much.
You can use a cash-back program as creative financing because it can provide as much as 3% cash back at closing. The interest rate would be slightly higher but not as high as the 5% downpayment scenario. In many cases this is all a person needs to get into the house of their dreams.
Cash-back mortgages can also be used to buy furniture, appliances or to do improvements in the house after purchase. The interest rate you pay is certainly less than putting it on your credit card.
Debt Consolidation Strategy
Many times people are not able to buy the house they want because their monthly payments are too high. This creative financing technique requires some planning on your part.
If you go to your local bank, you can often qualify for a low-interest un-secured loan. The interest rate would be far less than your credit cards, so your payments would be lower. Quite often, this is all that is needed to qualify for the mortgage you need to get into the new house.
Sometimes people want to move into a new house but keep their existing one and rent it out. It is a smart idea to consolidate all your credit card debt into your existing house before you buy the new one. After the new mortgage is in place, you can put in an offer on the new house. Your debt ratios will look very good because the increase in monthly payments in your mortgage, amortized over 25 years at low interest rates, will be negligible. If you talk to your accountant, you may even be able to write-off the interest on the rental property and save even more money.