Taking out a mortgage is the traditional way to finance a home. There are many types of mortgages, offering a variety of options for buyers. You can apply for a fixed rate loan, like a 15 or 30-year mortgage, or a variable rate mortgage like an adjustable rate mortgage (ARM). However, there are other home mortgage alternatives that provide a variety of options.
You should start by selecting a home mortgage that best fits your financial situation. But first, ask yourself if a mortgage is even the right option for you.
Another important question to ask is whether you are qualified for a home mortgage. In this economy, mortgage lending companies have become even stricter with their requirements after the housing crisis over a decade ago. Borrowers need to have a high credit score and be able to have quite a bit of upfront cash necessary for the down payment to qualify for a mortgage in most cases.
Fortunately for the people who do not want to go down the mortgage route or who just can’t qualify for a mortgage, there are other ways to be able to own a home.
Here are three home mortgage options to consider:
Borrow against your life insurance policy
As you make payments on many whole life insurance policies, they will increase its cash value over the years. The dividends and interest that you earn will also go toward increasing the insurance policy’s cash value.
As the principal of that life insurance policy, most allow you to borrow against its cash value. Since technically that money is already yours, you do not need to go through a loan qualification process. You should check the interest rates and determine if it is competitive enough.
Borrowing against your insurance policy to finance a home mortgage can be tricky because it will affect the value of your policy. Only do so if you think you can repay the loan.
Sit down with your insurance agent and determine the pros and cons of buying a home using this method. The benefits you get from owning your own home must be able to surpass the cost of borrowing against a life insurance policy.
Another option that isn’t always the best choice is borrowing against your 401k retirement plan. Many plans allow you to borrow against your balance for life events such as buying a home.
Be careful though. In addition to losing future earnings while you repay the loan to your retirement account, you need to repay the loan before you leave your job. If you lose your job, you’ll how to repay the balance right away. If you don’t repay, the government could hit you with penalties for withdrawing the money before you’re legally allowed.
Lease a home
The lease option to a home mortgage is more familiarly known in layman’s terms as the rent to own option. Rent to own is a good way to find the house of your dreams and test drive it before you buy.