For the last ten years, American homeowners and real estate investors have enjoyed extremely low interest rates, relatively flexible financing, and readily-available long-term mortgages (such as the 30 year mortgage). Times may be about to change, however.

For starters, the Obama Administration has proposed that the federal government no longer guarantee conventional (conforming) mortgage loans, and only guarantee loans to homeowners with “modest incomes.” This would increase risk for lenders, which of course means they would charge more, and would be less likely to offer fixed-interest loans for terms as long as 30 years. The 30 year fixed mortgage probably wouldn’t disappear entirely, but would be available only to lower-risk borrowers.

Then there’s the concern in Washington over inflation, and talk that interest rates will soon be on the rise. For homeowners and landlords with bad credit, a rise in interest rates could push monthly payments outside the affordable range.

If you’re thinking about buying a home, or maybe a lease agreement property, and you’re looking for alternatives to traditional mortgages, here are a few options worth considering:

1. Seller Financing
There are still many homeowners around the country who are quite desperate to sell, and will consider holding a mortgage in order to get out from under a piece of real estate. Whether as an alternative to a conventional mortgage, or as a second mortgage, seller financing can mean that even homeowners and real estate investors with bad credit can still purchase and be financed. While it’s usually a win for the buyer, the seller assumes the risk of the loan, which most sellers are not willing to do, and many sellers have mortgages of their own that must be paid off.

2. Lease Agreement with Option to Buy
For those not ready to buy, whether for lack of a down payment saved or bad credit, a lease agreement with an option to purchase (also known as a lease option agreement or a rent-to-own agreement) can make sense. Often the lease amount will be higher than it would have otherwise, with a chunk of the rent going towards the purchase price as a down payment (in other words, built-in savings for a down payment). In many cases, the landlord is open to selling the lease property regardless of whether an option to purchase was included in the lease agreement signed initially, so tenants that are thinking about buying should consider calling their landlord to ask whether they’d be willing to sell. Tenants with a good payment history can also ask if the landlord would be willing to hold the mortgage, to make the transaction even smoother.

3. Cash & Sweat Equity
If you’ve saved a substantial sum of money, you may not have enough to buy that beautifully renovated home of your dreams, but maybe you do have enough to buy that fixer-upper down the block that needs a little (or maybe a lot) of TLC. You can buy it in cash, use your credit card to pay for the materials to get it in the minimally livable condition, then perform additional repairs as you have the time and money. Within a few years, you’ll have the house of your dreams, and with no mortgage! If you’re a landlord, you can always consider signing a lease agreement with a handy tenant, and negotiating a deal for them to renovate the property over the course of their lease term.

Mortgages won’t disappear, but as America climbs out of the Great Recession, mortgages will certainly become more expensive, and longer terms may become difficult to secure. If you can, lock in a great loan today for your real estate purchase, or consider one of the alternatives above to keep the American Dream of owning real estate alive and well in your household.

Author Bio: Brian Davis is a landlord and manager of EZ Landlord Forms, an online resource for landlords and property management firms that offers free rental application & lease agreement forms, real estate investing articles, a directory of real estate investment clubs, and much more for landlords.

Category: Real Estate
Keywords: lease agreement, real estate investing, real estate investment, mortgage alternative, lease option