The latest report by Zillow shows that the typical home price in the US was $287,148 in May 2021, an increase of 13.2% from May 2020, according to CNBC News. Owning a home is a dream almost everyone wants to fulfill. However, many individuals fail to own homes due to a lack of funds to make a purchase. If you’re like many people, you might think buying a home in the country or city is impossible if your savings account looks a bit lean, but that’s not the case. There are some innovative ways you can finance your purchase with little out-of-pocket money. Read on to learn a few creative tips for financing your home purchase.
Many real estate investors assume buying homes is always better than renting. They ignore that leasing is a viable option for homeownership. It’s important to understand that a lease option contract allows you to own a house at the end of the lease agreement with your landlord. Ideally, lease contracts require you to pay rent every month. Over time, your monthly rent payments count as your home equity.
Moreover, part of your monthly rent counts as a down payment for the house, depending on the contract details. However, leasing a home can be challenging because not all landlords can offer a lease contract option to potential property buyers. To increase your chances of buying a home based on a lease contract, search for property owners facing a hard time selling rental properties. In most cases, landlords agree to lease if they are unable to sell their property.
Apply For An FHA Loan
FHA loans have become a popular home financing option and for good reasons. These loans are provided by the Federal Housing Administration and are suitable for first-time homebuyers who don’t qualify for conventional mortgages. Note that, technically, you’ll be borrowing from a traditional lender. But unlike regular mortgages, you’ll be required to pay as little as 3.5% as a down payment for a new residential home if you have a credit score of 580 and above.
In addition to paying a low down payment with a low credit score, there are other benefits linked to FHA loans, such as less stringent qualifying requirements. You can also obtain an FHA loan after filing for bankruptcy. But like other home financing options, FHA loans have drawbacks. You’ll be required to pay a mortgage insurance premium upfront, regardless of how much you put as a down payment.
Don’t Overlook Cash-Out Refinance
Cash-out refinance is a perfect option for individuals looking to buy a second home or investment property. That’s because it allows you to access your property’s equity by replacing your old mortgage with a new one. Typically, cash-out refinance entails borrowing money to pay off the mortgage balance you may have and then keep the difference. For instance, let’s say your home value is $300,000, and you owe $160,000. The difference, which counts as your home’s equity, is $140,000.
According to property finance experts, home cash out refinance is beneficial in many ways compared to traditional mortgages and personal loans. When you opt to use your home equity, you establish better lines of credit with low-interest rates than credit cards and personal loans. You also get access to funds you can use to consolidate debts, fund an investment, college fee, or vacation. However, to enjoy these benefits, you need to understand how cash-out refinancing works. So, take time to research and consult lenders about your options.
Take Advantage Of Seller Financing
As odd as it may sound, some sellers are always ready to forego the formal mortgage process. In such a situation, a seller will lend you the cash themselves. This means you’ll pay the monthly mortgage repayments to them instead of a traditional lender. It’s worth noting that seller financing appeals to individuals who don’t qualify for conventional home loans. And it can only work if the seller owns the home without any outstanding balance.
There are many considerations when it comes to seller financing. So, before you can settle for this creative home financing technique, go through the seller’s terms carefully. In most cases, sellers risk dealing with buyers with a history of defaulting on loan payments. Nonetheless, as a buyer, you also risk losing your investment to a con. Also, review the interest rates and down payment. And then decide if they fit your budget as they tend to be higher than those offered by conventional lenders.
Lack of finances is one of the most significant barriers to homeownership. Ideally, without enough savings, owning your dream home might seem impossible. Fortunately, there are creative ways you can take advantage of to finance your home purchase. Popular home financing options include FHA loans, leasing, cash-out refinance, seller financing, and personal loans. You may also consider crowdfunding, home equity line of credit, or self-directed IRA.