4 Ways to Buy a House Without a Mortgage
Although mortgages are a common way to purchase a home, you can only get one if you qualify. The qualifications include an acceptable credit score, a sufficient down payment, and meeting a bank's income and employment requirements. And let's not forget, every mortgage charges interest, which increases how much you pay in the long run.
The good news is that a mortgage isn't the only way to purchase a house. If you think outside the box, you can possibly pull off a home purchase without a costly loan.
1. Live Off One Income
Some people like the idea of paying cash for a house, but don't think it's a reality. If you're a two-income household, one method for getting a home without a mortgage involves living off a single income for a few years.
If you and your partner work and earn a decent salary — and live in an affordable area — you might be able to save enough for a cash purchase by keeping your life as simple as possible and subsisting off one income. This approach allows you to save 100% of the other person's take-home salary. So if you both earn $30,000 a year, rather than maintain a lifestyle requiring $60,000 a year, live frugally and save the other half of your combined income. In six years, you'll have approximately $180,000 cash for a home purchase.
Of course, living simpler is much easier said than done. To make it work, consider renting out a room in your house or apartment to help cover expenses, or you can rent a room from family or friends. Other options include skipping vacations, spending less on entertainment, and sharing a car. These are sacrifices that pay off in due time.
2. Sell Your Home and Purchase Another One
If you're thinking about downsizing and you have plenty of equity in your current home, another option is selling your home, taking the profit, and moving to a location with a lower cost of living.
This works if you're currently living in an expensive area but thinking of moving to a location where you can get more house for your money. Let's say you sell your current home and walk away with a profit of $150,000. This could be exactly what you need to pay cash for a new property in a different part of the country.
3. Get an Investor
Then again, maybe you're not looking for a primary residence, but rather an investment property. Getting a mortgage for an investment property is tricky. Many lenders require a higher credit score for investment properties, plus you'll need a higher down payment and cash to fix up the property.
What you can do, however, is seek out an investor to cover the expense of buying and improving the home. Some investors will pay cash for properties and provide funds to rehab the property. Once you fix up and flip the home for a profit, you split the proceeds with your investor.
4. Use Seller Financing
If you can't get a traditional mortgage loan, seller financing is another option. This can work if your credit score is too low to qualify for traditional financing, or if you have a short employment record and can't qualify for a bank mortgage. Even if you have enough income to qualify for a home loan, most banks require at least 24 months of consecutive employment before approving an application.
Sellers who offer seller financing are more flexible. You sign a promissory note saying you'll repay the loan and then the seller signs over the deed to the house. You become the owner of the house, but the seller is the bank, so you'll make payments to the seller every month. Since you're the legal owner, you can still sell or refinance the property.
This type of financing typically has a short-term of three to five years with a balloon payment for the remaining balance due at the end of the term. Seller financing gives you time to improve your credit or financial situation so you can refinance into a traditional mortgage, at which point the seller gets their money.
But while this mortgage alternative can work in theory, the hardest part is finding a willing seller. Not all sellers will agree to this type of financing. The ideal seller is someone who has plenty of home equity and zero mortgage.
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