What is creative financing in real estate?

Creative financing in real estate refers to alternative methods of funding a property purchase or investment beyond traditional mortgage loans from banks or financial institutions. 

Creative financing deals, by their nature, are unique. Still, some common elements apply. Some examples of creative financing techniques in real estate include:

1. Seller Financing: In this arrangement, the seller acts as the lender and finances the purchase directly. The buyer makes regular payments to the seller, usually with interest, until the property is paid off.

2. Lease Options: This involves leasing a property with an option to buy it at a later date for a predetermined price. A portion of the lease payments may be credited toward the purchase price.

3. Subject-To Financing: In this scenario, the buyer purchases the property "subject to" the existing mortgage. The buyer takes over the mortgage payments, responsibility for the property including maintenance and repairs. but does not assume responsibility for the loan. This can be beneficial if the existing mortgage terms are favorable.

4. Wraparound Mortgages: This involves the seller holding a mortgage for the buyer while the buyer also obtains a new mortgage. The buyer makes payments to the seller, who then uses a portion of those payments to pay the underlying mortgage.

Creative financing can offer benefits such as flexibility, quicker transactions, and potential income for the seller before the transaction is finalized.  

Who benefits from creative financing? 

Anyone who does not need the cash immediately wants to get more for a property than a traditional sale would allow.  The price and condition of the property doesn’t matter. 

Anyone who has a property that is in danger of foreclosure. In this case, creative financing can lock in equity, relieve foreclosure problems, and turn a potentially damaging financial situation into a profitable one.