When you hear the term creative financing, in most instances it will have something to do with an "outside of the box" method of acquiring real estate.

Real estate and real estate investing could be considered entrepreneurial hot spots that have drawn the attention of people wanting to build wealth and creative financing for home loans is right in the epicenter of that interest.

The primary goal of creative financing in real estate is for the buyer or investor to be able to purchase a property with very little or no cash out-of-pocket for the buyer. This is also known as using OPM (Other People's Money) to invest in real estate.

For the average person who finds it difficult, if not simply impossible, to come up with a down payment of 10% to 20% in order to get financing on their house, creative funding options may be the only solution that will allow them to even get into a home and enjoy the benefits of homeownership, including equity building.

Once a person or family is able to break through the barrier of getting into their first home, perhaps with the help of creative mortgage options, they can then plan to re-finance after a period of two to three years, and they will have their "foot in the door" to beginning to create wealth. For the average person, their greatest source of wealth building comes through homeownership.

In the case of the real estate investor, the motivation to use creative financing to put as little money down as possible on a property usually has much more to do with earning the highest return on investment (ROI) that he can and with being able to invest in more properties with the same cash.

Consider a scenario where an investor is able to purchase a property with a 10% down payment on a $100,000 house, so he has $10,000 cash in the property. If the house increases in value by 10% over the next year, that investor will realize a 100% return on the cash he invested, which most people would agree is a nice ROI.

However, if the investor was able to get into the same property with just 2% down, at the end of the year with the same increase in value, the investor would enjoy an ROI of 500%! Impressive!

In addition, this kind of creative finance scenario also means that if the investor was able to buy the house with just 2% down, then he would still have $8,000 capital available to invest in additional properties which could each result in similar returns on that cash investment.

While there are many different approaches to creative finance, two of the most poplar are hard money loans and private mortgages. A hard money loan is made by a hard money lender who usually has a pool of investors who are willing to lend money at higher interest rates, and usually strictly based on the value of the property as opposed to the credit score of the borrower. These are normally short-term loans and also carry points of at least 3% to 6%.

Private mortgages are most commonly loans given to a buyer by the seller of the property. In the case of a young couple who wants to buy a home but has no down payment, if they can find a seller who is willing to write a private mortgage for the down payment amount, then they will make an additional monthly payment to the seller. This creative financing can work well, but some traditional mortgage lenders prefer to see a cash down payment.

Creative financing can take many other forms as well, such as trading one type of property for another, setting up a simultaneous closing, making an arrangement for a lease option, or acquiring a loan with a balloon payment. With a little resourcefulness and tenacity creative finance for real estate is possible and can reward you well.