Five Ways To Get The Money You Need for Your Dream Home
Wednesday, August 3, 2016, 6:00 AM | Leave Comment
Homeownership is a dream shared by many. But, unless you’ve managed to save up a pretty significant amount of cash, chances are that your road to homeownership will be paved with multiple monthly installments.
Whether you want to buy an elegant condo or a large house, some intelligent property purchase planning needs to be done in order for you to get the best possible deal.
Luckily, in this day and age there are multiple options to consider, many of which still fly under the radar of most prospective buyers.
With that in mind, here are five of the best ways to finance a home:
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Traditional mortgage
Far and away the most popular option, typical mortgages last between 15 and 30 years and are obtained through banks, credit unions and special programs like those run by the Federal Housing Administration and the Veterans Administration.
Interest rates are currently on the low end, averaging at three to four percent depending on the length of the mortgage, while the down payment required in most lending scenarios can vary wildly, but typically hovers around ten percent.
Of course, any traditional mortgage is subject to a fairly strict approval procedure, requiring a good credit score and heaps of documentation.
Still, if you’re able to get approval, now’s a great time to lock in a great rate with this most traditional of financing options.
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Construction loan
As a result of the fact that some people would prefer building their home from the ground up rather than buying an already existing one, there are specific construction loans that exist to fund the actual building process.
These are underwritten for the length of time it takes to construct the home and function like credit lines that only last until the building is finished, after which you have the option of getting a mortgage that will pay off the construction loan.
An essential aspect of any construction loan consists in choosing the right contractor, who needs to be a reputable builder that can get things done in a transparent and efficient manner.
So, if you want to avoid troubles on your road to getting your dream home, you might want to find the contractors with a proven track record.
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Seller financing
Another option lies in bypassing the bank altogether and making mortgage payments directly to the person you’re buying the house from.
This arrangement is fully legal as long as you draw up a promissory note that specifies essential terms like the principal amount, interest rates, the repayment schedule and the consequences of defaulting.
Some sellers are wary of being put in the position of becoming lenders and will arrange to immediately resell the promissory note to an investor.
Nevertheless, this is a great way to bypass strict bank regulations, an often results in a better rate of return due to all the bank fees that you won’t have to pay anymore.
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Lease
Also known as a rent-to-own arrangement, this option lets you rent a property for a specified period of time, with an option to buy it outright at the end of that term.
Monthly rent payments are usually a bit higher than the average, but that’s because most of the surplus will go towards your future down payment.
If you change your mind, however, all the extra rent you’ve paid will be forfeited.
That being said, this arrangement is still a great idea for people who aren’t quite financially ready to invest in a home but expect to be up to the task within the next three years or so.
It’s simply a great way to keep your options open while still dipping your toes in the homeownership pool.
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Borrowing against your life policy
Finally, if you have a life insurance policy that accumulates cash value over time, you can borrow money against its value without having to go through any loan qualification process.
Of course, doing so will reduce the face value of your life insurance policy if you don’t pay it back.
So make sure you ask your insurance company about everything pertaining to your policy, from interest rates to annual dividends to the effect that taking out a loan will have on the policy’s death benefit.
When it comes to this method, it’s always a good idea to see if the benefits of owning a property outweigh the drawbacks of cashing in your life insurance policy ahead of time.
As you can see, there are plenty of ways to finance a home aside from the traditional route of taking out a mortgage.
Be sure to thoroughly research all your available options before you commit to any one of them, and you’ll be taking that all-important first step towards financing your future dream home.
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