Alternatives to Non-Conforming Loans

An alternative to a non-conforming loan is a land contract, which is allowed in some states. This is an agreement where the buyer makes regular payments directly to the seller, and the property title is only transferred once the buyer fulfills all the contract obligations. Land contracts can be helpful for buyers who need time to build or repair their credit. The benefits include:

• Lower closing costs compared to traditional financing
• An opportunity to build a positive payment history, which may help when applying for a future conforming loan
• Flexibility in terms that may not be available with institutional lenders

However, there are also notable risks. Land contracts may not be recorded in public records, meaning the buyer could face challenges in proving ownership later. In addition:

• There’s no guarantee the seller can deliver a clear title at the end of the contract
• No lender oversight means there might be no appraisal or inspection, potentially hiding issues with the property or pricing

Another option some buyers consider is assuming the seller’s existing mortgage, if the loan terms allow it. This can reduce closing costs and possibly secure a more favorable interest rate than what’s currently offered in the market.