When the time’s right to purchase a house, a large majority of homebuyers apply for a loan with a mortgage lender or broker. They may save up or improve their credit ahead of time to ensure that they qualify for a home loan, and then contact multiple banks and lenders to review their options. But with mortgage lenders tightening their lending requirements after the mortgage crisis of 2007-2008, it has become harder for some people to qualify for a home loan.
Conventional lenders require a credit score of 680 or higher, plus a 5 percent down payment. As a result, some homebuyers think twice about acquiring a massive debt and consider alternative ways to finance their house.
1. Open a high-yield savings account.
A savings account keeps your money safe, plus you can earn interest on your deposits. But if you open a savings account with your personal bank, you won’t receive the best rate on your return. Getting the highest interest on your savings account can help if you’re in the market to purchase a home. Let’s say you make regular deposits into your savings account to save for your down payment, closing costs and other mortgage-related expenses. Your bank will pay you interest on these deposits. The interest paid by your bank adds to your savings, allowing you to save more for your house.
For the best interest on savings accounts look into online high-yield savings accounts offered by ING Direct, Ally Bank or American Express. Whereas your bank might offer a 0.01% return on your money, an online bank might offer 0.90% or higher. Higher earnings help increase the amount of your down payment. The higher your down payment, the less you have to borrow from a lender.
2. Take money from an inheritance.
If you receive an inheritance or a payout from a life insurance policy, use this money to buy a house with cash – or put down a sizable down payment. This option works if you have limited income or poor credit since it’ll be more difficult for you to qualify for a home loan. By paying with cash, you avoid the whole mortgage loan process and you’ll own your home free and clear.
3. Borrow from a whole life policy.
If you have a whole life policy that accumulates a cash value, borrow against this policy for your home purchase. Another ideal solution if you cannot qualify for a traditional mortgage loan, or if you need down payment money. And the best part: borrowing from a whole life policy doesn’t involve an application or loan process. Simply contact your life insurance provider and request a loan against your policy. Understand, however, there are limits to how much you can borrow. And if you do not pay back the funds prior to your death, your beneficiaries receive a smaller death benefit.
Don’t let a mortgage rejection or higher down payment requirements stop your dream of ownership. Think outside the box and you’ll discover various alternatives to financing a house.