3 Alternatives To Mortgages

By on January 2, 2013

There can be a number of reasons why you don’t want to take on a traditional mortgage, whether you’re a buyer or an investor.

Whether, you’re in less than rude financial health due to money problems, have plenty of assets but no significant cashflow, or perhaps you have an irregular income. However, there are a number of options to help you out when purchasing some real estate.

Borrow Against a Whole Life Insurance Policy

Whole life policies accumulate over time due to payments that make dividends and interest and you can possibly borrow against its value in cash. There’s no need either to jump through a qualification process.

There are downsides too and if not paid back you lose value from the policy. To avoid this you should check the interest rate on the loan and whether this action will reduce an annual dividend. You should also check to see if the loan affects death benefit and cause the policy to lapse.

Ensure you can repay the loan and check the opportunity cost on just going ahead and taking a mortgage out. It’s all about deciding whether borrowing against the policy will outweigh the downsides.

Seller Financing

This allows you to bypass the bank and simply repay the person you buy the house from. The official agreement is drawn up as a promissory note – essentially a very advanced and very legal IOU. The downside of this is firstly many sellers won’t agree to this form of financing as they need the money to buy a new home. Secondly, they don’t want the hassle of it.

For buyers it speeds up the foreclosure process and it is lower in price due to the fact there is no mortgage origination fee. It also gives you a lot of room to negotiate as it’s a deal with the seller not with a bank.

Rent to Own/ Lease

This sort of option is also known as lease to buy and allows the home owner to rent for a period before they get the option to purchase the home at the end of term. In one of these scenarios the repayments are a little higher than they would be if you were to rent as money goes towards the down payment.

It’s a good option for those who can’t yet afford to buy but will hope to do so in the near future. Potential buyers that need time to improve their credit score, save a little or need to do certain things to qualify for a loan will find this option useful. It’s also good for those renting long term who wish to keep their options open if someone wishes to buy or sell property fast.

It’s also sometimes the case you can turn a rental situation into a rent to buy one, though this is not that often the case.

Of course, there are ups and downs with all three of these options but for many people they provide a great alternative to the traditional mortgage and can be a very viable option.

Cormac Reynolds writes for YouSellQuick who can offer you 100 per cent of your home’s value and also sell quickly.

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