3 Ways To Buy a House Even If You Don’t Qualify For a Mortgage
Written by
Cindy Lamothe
Edited by
Heather Taylor
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Being turned down for a mortgage can leave you feeling frustrated, stressed and with nowhere to turn. And if you’ve dreamt about purchasing your own home for a while, this can be especially disheartening.
Thankfully, you don’t need to despair. Experts say you can still buy a house even if you don’t qualify for a traditional mortgage.
Here are some strategies to help you achieve your goal.
Rent-To-Own Agreements
According to Daniel Rivera, owner of Proactive Property Management Solutions, rent-to-own agreements work well for buyers who need time to improve their credit or save for a down payment.
“As a property manager, I have structured rent-to-own contacts allowing tenants to lease a home for three to five years, with a portion of rent credited toward the eventual purchase price,” he said.
At the end of the lease, the tenant can buy the home by securing their own financing or with seller financing from the landlord. This approach, Rivera noted, provides stability for the landlord while giving the tenant a path to homeownership.
Michele Diglio-Benkiran, real estate attorney at Legal Counsel, PA, equally recommended this as a wise move. She added that the lease terms should specify the purchase price, length of lease and how much of the rent is applied to the sale.
“The buyer can then use the amount paid during the lease as a down payment,” she said.
Seller Financing
Seller financing, where the property owner acts as the lender, can also work if the buyer and seller can agree to mutually beneficial terms.
“I have helped clients offer seller financing at competitive interest rates, allowing the seller to earn interest income over time while providing the buyer with 100% financing to purchase the home,” said Rivera. He explained that with the right legal documents in place, seller financing can be a win-win.
Diglio-Benkiran agreed that seller financing is a pretty good option, as the seller provides the financing for the home instead of a bank. “The buyer makes payments directly to the seller, who holds the mortgage,” she said.
She explained this can be beneficial for both parties, as the seller receives interest and the buyer can purchase a home they otherwise may not qualify for. “The specifics of the financing terms are outlined in the purchase and sales agreement.”
Real Estate Investors and Private Lenders
For buyers who have been turned down by traditional lenders, private money loans from real estate investors are also an option.
“Real estate investors and private lenders may provide mortgage financing when banks will not,” said Diglio-Benkiran. The lender and borrower outline the specific terms, interest rate, repayment schedule and collateral in a promissory note and mortgage document. She added, “I always advise clients using private lenders to have an attorney review the financing documents to ensure their interests are protected.”
Rivera advised the same. “I work with several private lenders offering loans for my investment property buyers who want to purchase homes below market value, then renovate and either sell for a profit or rent out,” he shared. “The lenders earn above-average returns, while my buyers get short-term financing to secure deals they couldn’t otherwise. Terms tend to be six to 18 months, so the homes are sold or refinanced within that period.”
The key, he added, is finding an option suited to your specific situation and risk tolerance.
“With professional guidance, alternative financing can open doors for homeownership, even without qualifying for a traditional mortgage,” he said.
Remember — Talk To Professionals
Joe Stance, commercial real estate broker and founder of Stance Commercial Real Estate, noted that his years of experience as a commercial real estate broker has given him a unique perspective on alternative financing options.
“For over 10 years, I’ve helped clients acquire homes through alternative means,” he said. “One couple wanted to buy a warehouse but couldn’t get bank approval. I found a motivated seller to provide financing with interest. The couple has now owned that building for seven years.”
He said another client used a five-year rent-to-own agreement to gain enough equity and credit to buy their office building.
“Where there’s a will, there’s a way!” Stance said. “Talk to professionals, review your options and stay determined. With patience and perseverance, you can become a homeowner.”
More From GOBankingRates
