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.
