For most people, buying a home means paying a down payment of at least three percent of the home selling price. However, putting a down payment of 10-20% can help you save a lot of money on your home purchase, according to the Consumer Financial Protection Bureau. One of the biggest challenges potential homebuyers face is how to finance their purchase. Most property buyers decide to make a purchase with an all-cash transaction or take out a personal loan. While these options may seem perfect, they are not the only property financing methods. There are many creative financing hacks to fund your home purchase. Below are some options you have if you need money now to finance your property investment project.
Lease Option
Lease options or rent-to-own contracts are a viable way to purchase a home if you’re on a tight budget. When you opt to lease property, you’re required to pay rent every month until the end of the lease agreement. The monthly rent payments count as your home equity, and a portion of it accounts for a down payment. It all depends on the terms of the lease. As a potential homeowner, you stand to enjoy many benefits when you lease to own a home. First, you get time to improve your credit score, thus increasing your chances of qualifying for a home loan. You also get to save for a down payment, and you don’t need to move after the lease contract.
Apply For Conventional Mortgage
Conventional home loans are the most popular financing tool among property buyers. These loans are accessible in banks and credit unions. To qualify, you need to have a credit score of at least 620. Your debt-ratio-income should also be less than 50%. When it comes to the down payment, the amount you put up will vary from one lender to another. You can only be sure that you’ll need mortgage insurance coverage if you pay a down payment of less than 20% for the home price.
If you’re looking to obtain conventional home loans, property finance experts suggest finding a mortgage lender that offers multiple options. It’s worth noting that there are different types of traditional mortgages, such as conforming conventional loans and non-conforming conventional loans. Other options include fixed-rate, adjustable-rate, and low down-payment conventional loans. The type of traditional loan you pick will depend on your credit score, debt-income ratio, and employment history.
Consider Self-Directed IRA
Another creative way of financing a home purchase is through a self-directed IRA. Unlike other retirement savings options, a self-directed IRA gives property investors more control. Note that all returns flow through an IRA and not straight to the property investor. Moreover, a self-directed IRA allows you to boost your retirement savings every time you purchase a home. However, for you to succeed, you need to understand how to own property using self-directed IRAs. So, take time to learn how self-directed IRAs work to avoid mistakes.
Having limited finances is the most significant obstacle potential homeowners face when purchasing a home. Fortunately, there are many creative ways to finance a home purchase, even when you have little money. Depending on your needs, you can choose to own a home by applying for conventional mortgages, using self-directed IRA, leasing, taking out an FHA loan or leverage seller financing.
