Alternatives To A Traditional Mortgage
It's with good reason that Americans these days are weary of traditional mortgages, but too often it seems like there's no alternative. That's a problem for home buyers and investors who either can't or don't want to obtain the standard mortgage.
Whatever your reasons, it turns out there are few ways to finance a home purchase that won't lock you to a bank for 30 years. Full disclosure – not all of these paths are easy. If they were, they'd probably be beating out the standard mortgage these days. It can be done, though, and here's how.
Borrow Against Your Whole Life Insurance
This, of course, assumes that you have a whole life policy, but if you do, it could save you when it comes to buying your new home. Since a whole life policy accumulates cash value as you make your regular premium payments and earn interest, it's possible to borrow against that cash value, and you can do so without having to go through a loan qualification process.
While borrowing against a whole life policy gets around both the bank the qualification process, it is still ultimately a loan, and will be treated as such by your insurance company. That means that you're still making those monthly payments, and you've got to be prepared to do so, since the face value of your policy will be reduced if not paid back.
Remember that the end goal of a life insurance policy is to provide for the needs of your beneficiaries should anything happen to you. The purpose is to use it as a leverage able tool, not as an influx of cash or to make up for money that you don't have the intention or ability to put back into it.
That being said, a whole life policy and a willingness to make good on your loan might be exactly what you need to get out of the mortgage slump.
Check Out Your State Housing Finance Authority
These guys do what mortgage lenders often don't – they work on helping first time and low-to-mid income buyers get homes, and they do it on terms those buyers can afford. Often, they'll get buyers below market interest rates and/or the option of starting with as little as 3% down.
There's a trade-off. Buyers working with https://www.ncsha.org/housing-helpHousing Finance Authorities often have to complete financial education courses, and they need to be ready and willing to prove their income right down to the cent.
That's a small cost when it comes to your home, though, and many HFA borrowers have had better luck with their loans than traditional mortgage borrowers, with HFA loans showing noticeably lower late payment and foreclosure rates.
Get Someone Else Involved
You may not want to turn to mom or dad to ask for help, but getting someone with assets involved is a good way to get around the typical financial institutions. While sometimes uncomfortable it is a much better option than applying for a car title loan If a friend or family member has means or something against which they can borrow, like a family home, getting the money from them and paying up front takes the burden off the front-end home purchase all together.
It doesn't have to be a point of contention later down the road, either. Putting everything in a promissory note, including payment and interest terms, and getting everyone to sign a contract makes the whole thing look and feel a lot more like a traditional loan for both parties, and gives a bit of added protection to the lender to abate some of their fears.
Getting legal documentation and counsel involved also ensures that the loan doesn't look like a gift, which keeps it away from being subject to the gift tax.
Rent To Own
Let's start with the bad about these deals – they're difficult to come by and can be prone to less than savory would-be sellers. These days most rental properties are profit makers for their owners, and at least on paper, maintaining a rental property outright is favorable for the property owner.
If you can find one, though, rent-to-own or lease-to-own properties put the buyer at a theoretically lower risk, and even give them a chance to test drive the place. With these deals, the buyer rents the home temporarily while the sellers puts a set portion of the monthly rent into an escrow account.
When the lease is up, the buyer can use the escrow account toward a down payment, or they can grab their things and find another place.
This gives potential homeowners the chance to build up savings, bolster their credit score, or do whatever they need to do to get financially fit for the day they'll actually purchase.
Get A Non-Traditional Mortgage
Sometimes avoiding a mortgage all together won't be feasible, but that doesn't mean that you're stuck with that normal 30 year mortgage. 15 year mortgages have higher monthly payments, but since they're paid down in half the time, home buyers actually end up paying less overall due to interest.
If you're of more modest means, look into a Community Development Financial Institution, which can help set up home buyers in areas undergoing revitalization and aren't subject to new mortgage rules. The USDA offers loans for much the same purpose, too, helping to get low to mid income borrowers in rural and suburban areas housing loans that can finance up to 100% of the home's purchase price, provided a few conditions are met prior to and during the borrowing process.
Whether you're unable to get a traditional mortgage, or you're simply not interested, you don't have to exclude yourself from the home buying process. Plenty of alternatives exist to the standard 30 year mortgage, and they come in all shapes and sizes to help would-be home buyers of all abilities. All it takes is a little bit of research to find the method that's going to work for you. Once you do, you could be on your way to owning your new home in no time.
