What is Creative Financing?
When you apply for a home loan your loan application will be compared to guidelines established by either Fannie Mae or Freddie Mac, the 2 businesses that provide most of the mortgage money used to make home loans available. However, these rules are designed with a specific qualifying profile and may not apply to qualified borrowers who have unique or complex financial structures.
This is where creative financing can help.
Before we go further with this concept, I want to stress that creative financing is not financing that is based on anything that is improper or illegal. For our purposes, we are going to call those loan programs that don’t fit inside the Fannie Mae/Freddie Mac box creative financing solutions. They are good loans backed by investors who understand that a unique financial structure doesn’t mean an unqualified borrower.
What are some examples of unique financial structures that Fannie / Freddie loans may not accommodate?
Let’s say you’re self-employed in a business that allows you to maximize tax deductions to minimize income tax expense. The formula for Fannie / Freddie loans requires a lender to qualify a borrower based on taxable income plus any add-backs for non-cash expenses such as depreciation. But what if you have additional expenses such as accrued benefits for employees or accrued expenses for inventory reserves? Those are expenses that will be allowed as an income tax deduction under an accrual basis accounting system, leaving a business with minimal taxable income but very strong cash flow. There are many different ways business owners with strong cash flow can minimize taxable income – but these strategies may prevent a borrower from qualifying for a mortgage based on standard guidelines.
Today there are a number of solutions available to help – such as bank statement loans and asset utilization loans.
For more information about loan programs with unique benefits can help you buy a home or refinance an existing property, contact me by phone at (800) 680-7875 for a no-pressure conversation, or send an email message to Linda@LindaonLending.com for a written response.
“Would I be comfortable recommending this financial strategy to my son?”
After a 25+ year career rising through the corporate ranks in progressively more responsible financial positions, I made a career switch that provides me far more satisfaction – the ability to help my clients meet their goal of home ownership or additional financial goals based on mortgage financing. I love being able to help my clients improve their financial future by using my skills to navigate a complex financial system to find just the right loan!
The guiding principle that drives my business interactions is whether or not I’d be able to look a family member in the eye a year from now and still feel good about the financial recommendation I’ve made.