Wondering How to Buy a House without a Mortgage Loan? Read this!
The feeling of knowing that you own a house without mortgage finance is quite satisfying. This certainly is not easy but it is possible. Typically, most home buyers would need financial assistance in the form of a mortgage to buy a new house. The requirements for a mortgage often involve a down payment and a good credit score. However, there is even a better and easier way to buy a home without the usual headache of saving for a large deposit. These are considered below;
1) Rent to own
This is also known as rental purchase or rent-to-buy. It is a type of legally documented transaction under which a property is leased in exchange for a weekly or monthly payment, with the option to purchase at some point during the agreement.
This gives you an opportunity to rent a house with a 20% discount on rent, thereby giving you enough time to save up some money and buy shared ownership of the property for a set period of time, usually up to 5 years.
Conversely, a mortgage does not offer this type of flexibility and access to variety of choices that are specific to your situation without compromising on your needs.
2) Private Loan
This could typically mean borrowing from a family or friends. Private lending is much more accessible and inexpensive as compared to borrowing from the banks.
Private loans are most times more beneficial for both parties involved. It affords parties the opportunity to negotiate a flexible payment method with lower interest rate, while the lender has a chance of getting a higher return on investment than other investments.
The pros and cons of using a private loan to a mortgage bank are as follows;
- Private loaners are most likely not to charge upfront, no down payment required while with mortgage loans would require a down payment usually from 5% is required before the transaction actually begins.
- Private loans terms typically involve convenient monthly repayments with a less stringent process. While mortgage loans involves a stringent and lengthy process. You also have to pass a credit assessment and have a good credit score to qualify for a mortgage loan.
- Private loans often do not charge a fee for obtaining the loan. However the conventional mortgage loan demand an upfront fee whether or not the loan is successful.
3) Buying a House with Cash
This is the most obvious way to buy a house without a mortgage loan, it is also the simplest if you can afford it. Buying a house with cash does not mean paying for the property in physical cash, it refers to having the asking price in full to make an upfront payment having saved for it beforehand.
The advantage of buying a house with cash includes the absence of interest payments on loan or closing costs. Secondly, cash buyers have an advantage over buyers seeking a mortgage as the transaction can conclude quicker without complications. The bidder with the complete payment at hand will definitely be the most preferred candidate. Finally, when you buy a house with payment made in full, you do not have to worry about mortgage repayments, as it is not a part of your bills if you were to run into financial problems in the near future.
4) Owner Financing
Owner financing is an arrangement whereby the seller agrees to accept payment in instalments directly from the buyer rather than having the buyer obtain a loan from a bank. These deals are usually short term usually up to 5 years. It is believed that after five years the buyer should have enough equity in the property and or have enough time to have saved money to improve their financial situation to at least qualify for a mortgage loan.
The pros of this method of buying a house without the mortgage bank are;
- Flexible down payment: There is an opportunity for the buyer to negotiate his down payment as there is no required bank/government minimum charge.
- Closing is faster and cheaper: No time wasted on processing or approval of application with no extra bank fees or appraisal costs.
This method is not devoid of cons and they include:
- There is no standardised interest and as such it may not be as competitive as that been offered by the banks.
- Complete payment is due on the term of the contract. In the circumstance that you cannot secure financing by then, you stand the chance of losing all the money you have paid so far plus the house.
Finally, it is important to consult with a real estate agent or solicitor to answer any questions you may have when considering this method as an option for acquiring your next property.