Creative Financing: have you ever heard of this term or met someone that bought a house, rental property or a car with it?
The Cambridge Dictionary defines it as: FINANCE new or unusual ways of legally getting money to finance something such as a home, project, or business; Much of the increase in home ownership has been through creative financing for borrowers with shaky credit.
Wikipedia defines it as: In real estate, creative financing is non-traditional or uncommon means of buying land or property. The goal of creative financing is generally to purchase, or finance a property, with the buyer/investor using as little of his own money as possible, otherwise known as leveraging, OPM (Other People’s Money).
The Business Dictionary defines it as: Creating an innovative capital structure, and arranging extended loan and trade credit repayment terms, to achieve a level of financial leverage not ordinarily possible.
Essentially, Creative Financing means “You Don’t Have the Money” plain and simple. This type of financing normally happens when a person doesn’t really have the resources for said item. It could be a debt to income ratio, no down payment, bad credit or lack of consistent employment.
It is important that one understand this simple fact, if a potential lender or salesman mentions that type of financing…Run because you can’t afford it and it will be a burden not a blessing.
Save up for your purchase and pay cash. If you are buying a home, save 20% for the down payment and finance using a 15 year convention mortgage.