In real estate, creative financing options can be highly useful, especially for buyers or investors who may not qualify for traditional loans or want flexibility in their deals. Here are some of the most popular types of creative financing options:

1. Seller Financing (Owner Financing)

• The seller acts as the lender and allows the buyer to make payments directly to them, often with terms they mutually agree upon. This can help buyers who don’t qualify for a traditional mortgage due to credit or income issues. This form of financing is called a Vendor Take Back Mortgage. The advantage of a this form of financing is that the buyer does not have to worry about going through a traditional lender to get a mortgage and it makes the home easier to sell since it opens the door to more buyers. The drawback of this form of financing is the risk to default against the seller. Since buyers with financing issues opt for this form of financing, the risk of default is higher. A good lawyer is needed to draft up a document that will help mitigate this issue. The buyer pays a down payment and then makes monthly payments to the seller, who holds a promissory note for the remaining balance.

2. Lease Option (Rent-to-Own)

• The buyer leases the property with an option to purchase it at a later date. Part of the rent may be applied toward the purchase price, helping the buyer accumulate equity.
• Pros: Allows a buyer to “test drive” the property and neighborhood while building equity.
  
  The buyer does not have to go through the traditional route to secure financing, which means a lot less regulatory hurdles
  
  
• Cons: If the buyer doesn’t go through with the purchase, they forfeit any rent premium paid as credit.
  
  Should the buyer's financial situation changes and they cannot qualify for a mortgage they lose the premium paid as rent
  
  Rents a typically higher than normal rents due to the buy premium used as a down payment
    

3. Assumable Mortgage

• Certain mortgages can be assumed by a new buyer if the lender allows it. The buyer takes over the loan's balance, interest rate, and terms. 
• Example: If a seller has a low-interest-rate mortgage, a buyer may assume that rate, potentially saving money on financing costs.

4. Equity Partnerships (Joint Ventures)

• An equity partner, often another investor, joins to fund part of the deal in exchange for equity or a portion of the profit. It’s a common strategy in large investments or real estate development.
• Pros: Reduces the buyer’s capital investment.
• Cons: Requires clear terms on profit sharing, ownership, and decision-making authority so it can be very complicated, especially of there is a strain in the relationship. Therefore, there should be a clause clearly stating what can be done in case this happens. 

5. Home Equity Line of Credit (HELOC) or Cash-Out Refinance

• If a buyer owns other properties, they can take out a HELOC or cash-out refinance on an existing property to fund a new purchase. This is common among investors with multiple properties.
• Pros: Allows access to equity without selling assets. This will not incur a tax on capital gains if you refinance a second investment property since you cannot tax debt.
• Cons: Can increase debt obligations and comes with the risk of losing the property if the loan isn’t repaid. Therefore, as a borrower you do not want to overextend yourself. Also if you are doing this to buy an investment property, be sure it cash flows so you can easily pay down your debt. 
  
  

Each of these options comes with its own advantages, risks, and legal requirements. Understanding these options allows both buyers and sellers to structure deals that meet their needs while working around potential financing roadblocks. Talk to your Realtor to see if they can recommend a good mortgage broker.