How to Finance a Home Property Purchase That’s Right for You

buy a starter home

72% of millennials say owning a home is a top priority. Some of the reasons why they prioritize homeownership over marriage or having kids include a desire to acquire a stable housing situation before settling. They also feel mature, responsible, independent, and established when buying their first home.

However, owning a home property is a huge commitment, and above all, requires the ability to finance a home. The good news is that there are ways to pay for your dwelling depending on your income, debt levels, and credit standing.

Obtain A Mortgage

If you are already a homeowner, a mortgage refinance can eliminate mortgage insurance or shorten the duration of your loan. Basically, refinancing is replacing your current mortgage with another loan that has a different rate and term. It allows you to borrow on your property’s equity to pay off your current mortgage. To qualify for refinancing, you must have a steady income and a good credit score and possess at least 20% equity in your home.

However, for first-time homebuyers, one of the most important steps in purchasing a home is to acquire a mortgage. Lenders will assess your creditworthiness and check your ability to repay the loan based on your income, assets, liabilities, and credit history. You must also do your research thoroughly by deciding on the types of loans you wish to avail of.

For example, conventional loans that are not guaranteed by the government have fixed rates. They require bigger down payments and higher credit scores. On the bright side, if you qualify, they are less expensive that those backed up by the federal government.

Apart from a conventional loan, you can also secure a mortgage backed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the US Department of Agriculture (USDA). You will need a minimum credit score to qualify, and extra documentation. Mortgage insurance is also mandatory. The advantage of government-issued loans is that they have lower downpayment requirements, making them attractive to first-time homebuyers who have low savings.

Secure A Private Loan And Donations

It’s also possible to borrow money from friends or family members. It works in the same way as a typical mortgage. You sign a contract that outlines the terms of the loan, payment schedule, and penalties.

Peer-to-peer lending sites such as Lending Club or CircleBack are possible places to get initial capital to fund a home. These sites can provide up to $40,000 to finance a home purchase.

Crowdfunding sites are also alternatives to raise money for a downpayment by sharing your plans with your social connections and the world.

Consider Seller Financing

Sometimes, house sellers are willing to do without a formal lender. They can lend you the money themselves, and you can pay your mortgage installments directly to them. Seller financing agreements are usually short-term, with the loan to be amortized by paying a balloon payment after five years – that is, settling the outstanding principal at the end of the loan period.

However, seller financing may come with higher interest rates, a hefty down payment, and a balloon payment. Nonetheless, it is a solution for buyers who are not qualified for a traditional mortgage.

Paying for a home property purchase can be a difficult process. Weigh the pros and cons carefully as they apply to your situation, whether you choose a conventional mortgage, government-backed loans, seller financing to finance a home, or private funds.

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