Can’t get a standard mortgage, one that conforms to Fannie Mae or Freddie Mac guidelines? Not to worry. You can consider alternative types of home financing. Some of these carry higher interest rates, because the person or institution loaning you the money feels that there is a higher risk involved. Higher risk equals higher interest rates and terms that are not as attractive. Here are some alternatives
Affordable housing loan-- An umbrella term used to cover various loan products targeted to first-time home buyers. Many states, counties and communities offer attractive mortgage programs to new buyers. Ask your real estate agent or mortgage loan officer about the programs and qualification guidelines.
Assumable loan-- An existing mortgage loan that can be “assumed” by another person. Most conventional loans are not assumable; government loans — Federal Housing Administration (FHA) or Veterans Administration (VA) loans — are typically assumable if the buyer qualifies.
Installment sale, also called a land contract-- Usually a private agreement between a seller and buyer in which the title is not transferred until all payments have been made. These are more popular in slow housing markets. If you’re considering an installment sale make sure that a real estate attorney reviews all the contract details before you sign.
Carryback financing-- When a seller agrees to finance either the first or a second mortgage on the property. This might be attractive if you only qualify for 90 percent of the value of a home. Ask the seller if he will carry back or hold a 10 percent mortgage. In this arrangement, the seller basically assumes the role of a bank.
Purchase money mortgage-- Any loan used to purchase the real estate, also referred to as “real property,” which serves as collateral. This is another form of seller financing.