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An alternative to a non-conforming
loan is the use of a land contract, which is allowed in some states. A
land contract is an agreement between a buyer and a seller, where the
buyer agrees to make periodic payments to the seller. The title to the
property only transfers to the land contract buyer on fulfillment of the
land contract obligations.
A land contract can be helpful for those
who need time to establish or improve their credit rating. There are only
small closing costs, and payment can help establish a good mortgage
payment record. This can help establish an overall good credit rating, and
it is possible for the buyer to later refinance the land contract with a
conforming loan.
On the other hand, there are risks associated with
land contracts. Land contract purchases are not necessarily recorded in
the public record, and there are no guarantees that the seller will be
able to transfer a clear title to the buyer upon fulfillment of the land
contract. There also is no lender assuring that the purchase price for the
property is justified, and no inspection of the property's condition.
Another alternative to a non-conforming loan is assuming the seller's
mortgage. By assuming a mortgage, if the mortgage is assumable, it is
possible to save on closing costs, and may allow you to obtain a favorable
interest rate.
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