Buying a house isn’t the easiest thing to accomplish. It’s something people have to work hard to get, but it is possible with some patience and a little bit of luck. One obstacle is money.
How will you get the money together to afford this purchase? Some homebuyers think there’s only one way to come up with the money, but the truth is there are many options.
The following are some financing options to help you move closer to being a homeowner.
The Conventional Mortgage
One way to finance your purchase is through a regular mortgage. This is the way many people purchase a house. Home seekers go to a bank or some credit union they belong to.
When someone tells you that you need good credit to buy a house, they are telling you this because they assume you’re going to be getting a conventional mortgage. The truth is that you need good credit to get a mortgage.
Your score cannot be lower than 620. Your debt-to-income ratio must be 50 percent or higher.
The reason your credit needs to be high is basically that you’re borrowing money to buy your house. You won’t own it outright for the length of the loan. This could be 15 years, but it’s typically 30 years. For 30 years, you’re going to be paying on this loan along with any interest. Not only must you agree to these loan terms, but you also have to come up with 20 percent of the total cost of the house.
Some folks don’t want a conventional loan or may not qualify for one. That’s okay. You aren’t alone if you’re in this position. The good thing is there are other ways of financing your purchase. You could turn to a government-issued loan. There’s a lot of ways to get a loan backed by the government.
Some are backed by your local government, while others are state funded. The biggest backers are nationwide government funding programs like the Federal Housing Administration or FHA. You’ve probably heard of a FHA loan since it is one of the most popular ones out there.
You could also qualify for the US Department of Agriculture loan or the loan that’s offered to the nation’s veterans through the Department of Veteran Affairs. You still need relatively good credit to qualify for these loans. Your score can’t be lower than 500 if you want to get these loans.
One of the most beneficial things about these loans is that the government isn’t expecting you to put down 20 percent. They are a lot more flexible. If your savings account isn’t huge, then this is where you want to be.
Seller Financing Option
Sometimes, a deal can be reached between the seller and buyer, without going through a traditional lender. There are times when buyers don’t qualify to get a loan but still want a house. This is more than okay as long as you find another way to fund your dreams.
The good thing is you can find a highly motivated seller to see if they’re willing to lend you the money to buy the house.
In essence, seller financing means you’re going to be paying the seller mortgage installments for an agreed amount of time.
It’s important to point out that you will probably get a high interest rate with this option.
Normally, the seller wants you to put down a pretty sizable chunk of cash in good faith. Sometimes, the deal may not sound so good, but it’s an effective way to become a homeowner. At times, it’s the only way to acquire a home if you can’t get a traditional loan or a government-issued loan.
Get an Investor
The idea of finding an investor to help you buy your home sounds a little strange, but you can do it. Those who don’t have much saved and don’t qualify for a loan can turn to investors.
Now, you can’t just look for an investor and hope this person says yes to you without offering anything in return. Most of the time, the investor agrees to carry the note for the house if you agree to fix the house while you stay there. Yes, many investors buy fixer uppers.
These houses need a lot of work. Maybe it needs a new electric grid or the home could need a new roof and a bunch of other stuff. If you agree to fix this house, then the investor may sell you the house.
You might leave in a couple of years, but by that time, the investor will get a house that’s in better condition than when he or she bought it. The investor can get much more for it this way, which is the reason some investors see the value in supporting homebuyers in this endeavor. You could also just pay cash since this will be a severely discounted home.
The investor could be a friend or family member, or it could also be a stranger you meet as long as this person is willing to work with your particular financial situation. Be sure to get multiple inspections so that you know what you have to do.
Crowdfunding is Possible
A new and exciting financing method comes thanks to the internet. There are various crowdfunding sites out there where one person can gather up enough cash to purchase their homes. This isn’t guaranteed, but it has happened for some folks out there.
The goal is to make a video or put out a heartfelt statement for people to read or see. You’ll explain your situation and what it might mean for you to finally be a homeowner.
The people in these sites will hear you out and might fund your dreams or might not. Some folks who could help fund your dreams could be your family or friends, but crowdfunding sites can connect you to good Samaritans with deep pockets who just want to help.
For this to work, you have to put in a lot of effort on the pitch. It’s the power of your story that’s going to get you enough support to reach your monetary goals so that you can become a homeowner.
Into the Retirement Savings
Most people have a retirement savings account, usually with their employer. For the most part, you’re not supposed to touch that money. It’s supposed to stay there because you’re going to need every bit of it when you retire, so a financial advisor might tell you to avoid doing something like this.
Still, with a little financial planning, you could get away with it. There is a penalty you have to worry about if you decide to withdraw some of your retirement. The good thing is a lot of retirement accounts have a clause written into the contract that allows you to borrow some cash if you’re going to be using that money to purchase your primary house.
Yes, it does have to be for your primary house. You can’t use this money to invest or anything without paying a penalty. Make sure you make a plan to pay back what you borrowed within a few years.
These are just some ways you can finance your first house purchase. As you can see, there are a few creative ways to reach your goal of being a homeowner.