Not qualified for mortgage? Here are the alternatives
Mortgage often stands as the biggest hurdle between you and a home loan to get you the desired home. If you are willing to buy a home, availing a home loan is the usual route. However, while applying for a loan you may not want to want to or in some cases you cannot obtain a traditional mortgage. You may not be able to convince the lender that you possess an ideal financial condition due to many reasons. There are few alternate ways of financing while going for property purchase.
Borrow from your whole life insurance policy
The whole life insurance policy accumulates cash value over time as you make your regular premium payments and earn dividends and interest. You can borrow against the cash value and while doing so, there is no need for any loan qualification process. This type of policy increases the borrowing potential. However, you have to keep in mind the fact that if you do not pay back the cash, the value of the policy will be reduced.
However before going for borrowing from your policy, be clear about few important terms with your insurance company – the interest rate on the loan, impact of the loan on your annual dividend and whether the loan would result in lapse of the policy. Only after you are sure of these terms, take a decision whether to go for the loan or not. The loan may affect the death benefit of the policy and in that case it will be difficult decision for one to go for the loan.
Always remember that you had opted for the policy, keeping in mind certain benefits to avail from it. Do not let borrowing to overshadow the benefits of the policy.
Seller financing
In seller financing, you bypass the bank and pay the mortgage directly to the seller. Usually you will need to pay a down payment to the buyer and after that, installments have to be paid (usually monthly) at a rate agreed upon by both you and the seller. In order to protect the interest of both the seller and that of yours, a promissory note is drawn up which documents principal amount, interest rate, repayment schedule, consequences of default, etc.
However, it is only rarely that you will find a seller willing to offer a loan to you. The foremost reason for this is that most of the sellers do not want to become buyers, even if seller financing offers better rate of return than most other avenues. They do not want to take the risks and hassles associated with being a lender.
If you are getting a loan from a seller, then be prepared to pay a higher rate of interest than the prevailing bank rates. The seller demands a higher rate in most cases as a compensation for the amount of risks he/she is willing to undertake that the bank is not.
Rent to own/lease
Rent to own or rent to lease is a good option if you are not being able to avail a loan from the bank. Under rent to buy option, you will be allowed to rent a house/property for a specific term with the option of buying the house at the end of the term. The rents are higher than the prevailing market rates and if at the end of term you opt against buying the house, then the extra rent is forfeited.
Rent to own is a good option for you if you want to save money for the next few years and want to improve your credit worthiness within the next few years.
All these options are choices for you if you are unable to qualify for mortgage loan and gives you the ways to be an owner of a house through some uncommon means of financing.
