3 Ways To Buy A House Without A Mortgage Loan

3 Ways To Buy A House Without A Mortgage Loan | The Loaded Pig

Despite what you may think, it is possible to buy a house without a mortgage or paying up front in cash. Many people have to get a mortgage in order to purchase a home, but if your credit isn’t good enough you may not get approved. Don’t let bad credit prevent you from buying a home. Others may want to avoid getting a mortgage simply because they don’t want to borrow from an institution. Whatever your reason may be, read on to find out several alternatives to getting a mortgage that will enable you to buy a home.

1. Owner Financing

Motivated sellers who have had trouble selling their home may be willing to offer owner financing. Also known as seller financing, this is when a home buyer finances the house through the seller directly. With owner financing, the buyer will save on traditional closing costs with a mortgage, which usually ranges from 2-5% of the purchase price of the house. Unless the seller is a family member or friend, you will likely have to pay a higher interest rate than if you purchase the home with a mortgage. This is because the interest rate has to offset the risk the seller is taking. The hardest part of going this route to buy a home is finding a willing seller.

2. Rent To Own

A rent-to-own agreement is between the seller and the buyer and allows the buyer to rent for a period of time, usually 1-3 years, before purchasing the home. It specifies the future closing date and purchase price, which is ideal if the market value of the home increases. Part of your monthly rent payments will be applied to your down payment and you can use the time renting to improve your credit. Renting-to-own can be a good option for people with poor credit, however your home options will be more limited. To search for rent-to-own properties in your area, check out housinglist.com. The term rent-to-own is often used broadly, but it is different from a lease-option, which is a rental agreement with the option to purchase the home later on.

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3. Peer-to-Peer Lending

Peer-to-Peer Lending | 3 Ways To Buy A House Without A Mortgage Loan | The Loaded Pig

This option is ideal for people who want to buy a home but prefer to avoid borrowing from an institution. Peer-to-peer lending or P2P allows people to borrow from individuals rather than institutions. There are many P2P sites that specialize in connecting prospective borrowers to investors, but most of them require about a 600 credit score. If your credit score is lower than that, you could reach out to family and friends and see if you can get a loan from them – this is how the original P2P lending worked. Treat all P2P loans with the same respect as you would a loan from a bank.

Getting a P2P loan from a company that connects borrowers and investors, rather than someone you know, will limit the amount you can borrow. Most P2P sites have a maximum you can borrow around $20,000-40,000. This means that to buy a house you’ll have to have additional cash on hand or combine this option with another, like renting-to-own. Prosper was one of the first companies in the P2P lending industry and it has a solid reputation. Over 1 million people have borrowed from Prosper totaling over $17 billion borrowed. The maximum that you can borrow from Prosper is $40,000.

Final Thoughts On Buying A House Without A Mortgage

Although each of these alternatives to buying a home with a mortgage has some downsides, if you choose one of these routes you can make it happen. It will take some time and perseverance, but it is certainly possible to buy a home without a huge pile of cash or a mortgage loan. Decide what option is best for you and find out what steps you need to take. Set your financial goals and then make them a reality.

If you’re interested in improving your credit, read 5 Easy Tips To Raise Your Credit Score.

Financial freedom begins with good habits.

Rebecca & Tiago, theloadedpig.com

Rebecca co-founded The Loaded Pig with the goal of helping people achieve their financial goals. Her passion for financial freedom has landed her on US News & World Report, CreditCards.com, Cheapism, and many other sites. Rebecca earned her Master of Business Administration from the University of Florida and her Bachelor of Arts from the University of Miami. She is currently a professor in the business department at Broward College.