Is it even possible to buy a house without a mortgage? I mean, you can always pay cash and then you don’t have to worry about it but did you know that 88% of homebuyers finance the majority of their home purchase? That means only 12% of the population out there is actually paying cash. So how is there any other way? You might be surprised to find there are several different ways to buy a house without the traditional mortgage through a lender from your bank, credit union, or mortgage advisor. Let’s talk about these 5 Ways to Buy a Home Without a Mortgage.
#1. The most obvious is to pay cash.
However, most of us don’t have a half $1 million in cash in our backpacks wandering around town so if this is something you can manage, more power to you! Simply pay cash, you can close in as little as a week or two, and move on with your life with very few monthly expenses except for property tax and homeowners insurance.
#2. Rent to own.
This makes a little more sense but, you still have a monthly payment, however, you can rent the property for a certain amount of time and then all of that rent can go into the purchase of the property. This can be a great alternative if you are unable to save for a down payment or you might not qualify for a mortgage. Low credit scores, bad rap in the credit department, etc. can make it almost impossible to get a mortgage so this might be your next option. In a rent to own situation, you pay the owner of the property a deposit, which gives you the option to purchase the home after a certain amount of time, typically 1 to 3 years. Your contract will lay every detail out and the owner will set aside a portion of your monthly rent and apply it to the purchase if you decide to buy the home when this lease agreement expires. The benefit is that you have time to rebuild your credit without feeling like your paying for someone else’s mortgage along the way. If you decide to buy the property, your deposit and rent credits will make up a good portion of a down payment.
#3. Owner financing.
While you’re not necessarily getting a traditional mortgage you’re still financing the property through the homeowner. If the owner is willing to sell to you directly they can finance the purchase for you, which means you make monthly payments to the seller rather than a bank. This contract should be very detailed and be written by a lawyer so that both parties are protected. The seller may wait to transfer the property title Intel you’ve made your final payment just like a bank and then a warranty deed can transfer legal ownership. However, this is tricky as many owners simply want to sell the property and move on, not be saddled to it while the occupant is making payments. But, this also gives you a little bit of time to perhaps repair your credit, set aside more for a down payment, and be ready to refinance and pay off the owner directly and just a couple of years.
#4. A private loan.
This is different than owner financing and private lenders can be less risky than banks. They may charge you a higher interest rate, however, to account for the higher risk they are taking on. If you can borrow money from a family member or friend, it can be awkward but private loans can be beneficial to both parties. You can negotiate more flexible payment terms, a lower interest rate, and you can earn more interest off your loan than other types of investments. You’ll want to make sure you draw up a mortgage agreement to secure the loan and cover everyone’s bases. Once you repay the loan, a lien is removed and the home is all yours.
#5. Sell, save, and invest.
Depending on how much time you have you can go the Dave Ramsey route and snowball as much money as possible into the purchase of a home within the next couple of years. I’ve known buyers that literally went into lockdown on their finances and saved up $200,000 in just three years to pay cash for their first home. It was a small condominium yet in the next three years was able to gain enough equity to make a huge down payment on a larger home. This really is playing the long game. Sell items that you have, go down to beans and rice or top Ramen, and invest what you have for the highest return possible and wait it out. It might be tough for a couple of years but as Dave Ramsey says, “live like no one else so you can live like no one else”.
More Financial Advice for Buyers:
- 5 Ways Not to Lose Your Mortgage
- Is a 10, 15, 20, or 30-year mortgage better?
- Is a Bridge Loan a Good Option for going from One House to Another?
- You Lost Your Job | What Can You Do About Your Mortgage?
- Bank Statement Loans are Perfect for the Self-Employed
- Facts About Credit Scoring and a Home Loan
- What’s the Difference Between Pre-Qualification and Pre-Approval?
*I realize that all these options except for cash and the last one have the buyer paying something monthly but if a traditional mortgage option is not doable, these are some great alternatives.