If you’re looking for creative financing real estate solutions (or unconventional ways to finance a house), you’re in the right place.
As of 2024, according to Statista, there are an estimated 79.6 million freelancers in the United States – and that number has increased by roughly 3 million per year since 2017.
That means that, by 2028, it’s expected to grow to a whopping 90 million.
But if you’ve ever tried to apply for a mortgage as a freelancer, a self-employed individual, or a business owner with a fluctuating income, you’ve probably run into some roadblocks. It isn’t as easy as it is for your traditionally-employed peers (even if you have a solid income).
That’s because conventional mortgage financing hasn’t quite caught up with the changing landscape of work and real estate investing. Today’s borrowers often have non-traditional incomes, but underwriting standards are stuck in the ‘90s.
That’s where we come in. In this article, we’re going to teach you all about unconventional ways to finance a house, common barriers to conventional financing, discuss creative financing real estate solutions, touch on non-QM lending – and what that means – and much more.
Common Barriers to Conventional Financing
As we mentioned above, conventional financing often excludes people with “unconventional” financial profiles: self-employed individuals, real estate investors, contract workers, business owners, and freelancers.
Here are the most common barriers to conventional financing that could lead one to explore creative financing real estate options:
High Credit Score Requirements
Conventional lenders typically have strict credit score cutoffs with little flexibility, making it difficult for borrowers with less-than-perfect credit to qualify, even if they’re financially responsible. Most lenders won’t consider you for a conventional loan unless you have a credit score of at least 650.
We’ve all heard the story about someone who applied for a single credit card at Home Depot to pay for a $10 can of paint, forgot about it, and then had to spend two years rebuilding their credit. At Defy, we believe a credit score can be important but it’s not the whole picture.
Low Tolerance for High Debt-to-Income (DTI) Ratios
A high DTI ratio can disqualify you from conventional financing, even if it’s due to business expenses, multiple properties, or other factors that don’t reflect your overall financial health.
Strict Income Documentation Standards
Most traditional lenders rely on W-2s and tax returns for income verification. This excludes freelancers, small business owners, and entrepreneurs whose income may vary or include deductions that reduce taxable income on paper.
Challenges for Non-Traditional Borrowers
Borrowers like self-employed professionals, gig workers, and real estate investors are often shut out of conventional financing due to underwriting standards that favor predictable income and employment histories.
Unconventional Ways To Finance A House Through Non-QM Loans
If conventional loans don’t meet your needs, Non-QM (Non-Qualified Mortgage) loans offer a flexible lending alternative. These loans are designed for borrowers who fall outside the traditional lending box. Whether you’re self-employed, a real estate investor, or a foreign national, or someone with several income streams so you can’t show tax returns, non-QM loans offer creative financing real estate solutions tailored to your unique situation.
Bank Statement Loans
Perfect for self-employed borrowers, Bank Statement Loans use personal or business bank statements instead of W-2s or tax returns to verify income. This option works well for entrepreneurs and freelancers whose true earning power isn’t captured by traditional documentation.
Debt-Service Coverage Ratio (DSCR) Loans
DSCR Loans allow real estate investors to qualify based on a property’s rental income rather than personal income from W2s, pay stubs or tax returns. They’re ideal for building portfolios without the constraints of traditional lending limits, making them a popular and creative financing real estate solution.
Asset-Depletion Loans
Designed for high-net-worth individuals, Asset-Depletion Loans use liquid assets like savings or investments to calculate income. This is a great solution for retirees or individuals between jobs with substantial liquid reserves.
Foreign National Loans
For non-U.S. residents, Foreign National Loans provide a path to financing without requiring a U.S. credit history or SSN. These loans rely on alternative methods of verification, such as international credit or cash reserves.
Interest-Only Loans
Interest-Only Loans allow borrowers to pay only the interest for a set period, lowering monthly payments and providing flexibility for those managing cash flow or planning a future sale or refinance.
Benefits of Using Non-QM Loans for Unconventional Ways to Finance a House
Accessibility for Borrowers with Unique Circumstances
Non-QM loans are designed for borrowers who don’t meet the strict requirements of conventional mortgages. They cater to self-employed individuals, investors, and other non-traditional borrowers who need more inclusive lending options.
Alternative Income Verification Methods
With non-QM loans, you can use bank statements, rental income, or liquid assets to verify income instead of relying on W-2s or tax returns.
Flexibility in Loan Terms and Repayment
Non-QM loans often come with flexible terms, including lower down payment options, interest-only periods, and adjustable repayment schedules.
Opportunities for Foreign Nationals and Real Estate Investors
Specialized non-QM programs are tailored to the needs of foreign nationals purchasing U.S. properties and real estate investors expanding their portfolios.
Addressing Common Concerns
Higher Interest Rates
Non-QM loans may have higher interest rates due to their flexible terms and risk-based pricing. However, they offer borrowers the chance to secure financing when conventional loans aren’t an option—a trade-off that’s often well worth it.
Loan Terms
Non-QM loans provide flexibility in loan terms, such as interest-only periods or alternative amortization schedules, which can help borrowers manage monthly payments effectively.
Prepayment Penalties
Some non-QM loans include prepayment penalties, but lenders like Defy Mortgage can help you structure a loan with minimal fees or walk you through options to avoid these penalties.
Now, you’re probably wondering, “What type of non-QM loan should I look into?”
Let’s see if any of these examples sound familiar so we can point you in the right direction…
Creative Financing Real Estate Solutions: Real-Life Scenarios
Scenario 1: Self-Employed Entrepreneur
The Challenge: You’re running a profitable business but lack the typical W-2 income documentation. Tax returns might not reflect your true earning power, leaving you frustrated by conventional lending guidelines.
The Solution: Bank Statement Loans or Profit & Loss Loans allow self-employed individuals to prove income through bank statements or business financials — no W-2s required. Defy Mortgage can help you navigate these loan programs and tailor terms to your entrepreneurial needs.
Scenario 2: Real Estate Investor Leveraging DSCR Loans
The Challenge: You’ve reached the limit of conventional mortgages or struggle to show enough personal income for more loans. Yet your rental properties generate solid cash flow.
The Solution: DSCR (Debt-Service Coverage Ratio) Loans enable you to qualify based on rental income rather than personal income. By focusing on the property’s cash flow, investors can expand their portfolios faster. Defy Mortgage’s DSCR loan options are designed to help you close quickly and scale with confidence.
Scenario 3: Foreign National Purchasing a U.S. Home
The Challenge: You want to own property in the U.S., but don’t have an established U.S. credit history or Social Security Number.
The Solution: Foreign National Loans can help non-U.S. residents access financing without the usual credit score roadblocks. Defy Mortgage offers specialized foreign national lending programs — perfect if you want to invest in or relocate to the U.S. without traditional documentation requirements.
Scenario 4: In-Between Jobs But Tons of Liquid Assets
The Challenge: You have a strong financial foundation—plenty of liquidity in savings or investments—but you’re in the middle of a job transition. Conventional lenders typically need steady employment records.
The Solution: Asset-Depletion Loans let you use your liquid assets to qualify for a mortgage. Defy Mortgage examines your total financial picture — retirement accounts, stocks, or cash reserves — to determine eligibility, rather than focusing exclusively on employment status.
Conclusion
Navigating the world of unconventional financing doesn’t have to be overwhelming. Non-QM loans provide accessible, flexible, and inclusive solutions for self-employed individuals, real estate investors, and foreign nationals alike.
At Defy Mortgage, we specialize in helping borrowers like you explore creative financing options that align with your goals.
If you need help with your situation, give us a call or schedule an appointment, and we’ll walk you through the process and see what we can do to help.
Unconventional Ways to Finance a House FAQs
What Are Some Innovative Strategies Within Creative Financing Real Estate?
Creative financing options include non-QM loans like DSCR, bank statement loans, and asset-depletion loans.
What Is a Non-QM Loan?
Non-QM loans are designed for borrowers with non-traditional financial situations. They offer alternative income verification methods and flexible underwriting to help you secure financing outside conventional guidelines.
Who Benefits from Creative Financing Real Estate?
Self-employed borrowers, real estate investors, contract workers, foreign nationals, and freelancers are ideal candidates for non-QM loans.
Is Creative Financing Legal?
Yes! Creative financing methods, including non-QM loans, are legal and commonly used in real estate investing markets all across the United States like Georgia, California, Hawaii, and Tennessee.
How to Use Creative Financing Real Estate for Property Investments
Creative financing tools like DSCR loans help investors qualify based on rental income and scale their portfolios faster.
Are There Unconventional Ways to Finance a House
Yes! If conventional loans don’t meet your needs, Non-QM (Non-Qualified Mortgage) loans offer a flexible lending alternative. These loans are designed for borrowers who fall outside the traditional lending box such as borrowers who can’t show tax returns, want to use rental income to qualify for a home loan, don’t have a SSN, are in-between jobs, etc. These lending options include but are not limited to: Bank Statement Loans, P&L Loans, DSCR Loans and Foreign National Loans.
