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For many, the idea of buying a house or qualifying for a mortgage seems unattainable, especially as housing prices continue to rise.
But this doesn’t mean you have to put off your dream of home ownership.
Surprising to many, there are several ways to buy a house without needing a traditional mortgage.
In this post, I share with you 15 creative ways to buy a house.
To learn more about each of these methods and find out which would be suitable for you, read on.
Suppose you can’t qualify for a mortgage or aren’t in a position to commit to one.
A rent-to-own agreement could be a great way to buy.
This purchase agreement allows you to lease a property and eventually purchase it directly from the landlord.
The advantages of renting to own include not being tied to a formal mortgage and securing the property at its current market price.
This enables tenants to save enough money during the leasing period and purchase the property later.
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Another scenario that some real estate investors agree to is having your monthly rent payment act as your mortgage payment.
In this scenario, you agree to a purchase price, loan term, and interest rate.
You then sign a promissory note with all this information on it.
When you make your monthly payments, you are increasing your equity in the property.
At the end of the loan term, the house is now yours.
Understand, not every rental property comes with a rent-to-own option, as this agreement will need to be organized between the tenant and landlord beforehand.
It’s also important to note the two different types of rent-to-own agreements:
- Lease option: This allows the tenant the opportunity to purchase the property at the end of the leasing period but doesn’t legally require them to.
- Lease purchase: This is a contractually binding agreement, where the tenant must purchase the property at the end of the leasing period.
The type of leasing agreement you choose will depend on your financial situation and your long-term goals for the property.
Purchasing a home at an auction can be an effective alternative to getting a property at a cheaper price without needing a mortgage.
Homes are typically sold at auctions when they’ve been foreclosed on, meaning the owner has defaulted on their mortgage or failed to pay property taxes over a prolonged period.
Once the lender has repossessed a property, it will go to an auction, and bidders will have the chance to make their offers.
There are three types of auctions that homes can go to:
- Absolute auction
- Minimum bid auction
- Reserve auction
Homes at absolute auctions tend to give bidders more flexibility to place low bids below house value, especially if the aim is to get the lowest price possible on a home.
A minimum bid auction will require a higher starting price, and you may find yourself quickly outbid if you aren’t willing to increase your offer.
On the other hand, a reserve auction works similarly to a traditional home-buying transaction and gives the lender more freedom to reject low offers.
Buying a home at an auction also has some other caveats to consider, such as not being able to view the home before placing a bid, or buying a property in poor condition.
Nevertheless, purchasing a property at an auction can be an excellent method to forgoing a traditional mortgage.
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Getting a mortgage requires going through a traditional mortgage lender, like a bank or credit union, and qualifying under their terms, which can limit or deter potential buyers.
As an alternative, it’s also possible to inquire about a private loan.
Private loans are usually offered through family members or private individuals willing to supply the requested amount.
Obtaining a private loan can be a safe solution for some buyers because it simplifies the home buying process.
It also means forgoing high interest rates from the banks and any other limitations that prevent potential buyers from qualifying for a conventional mortgage, such as bad credit.
Although private loans can be provided by people close to you, including parents or grandparents, it’s vital to establish clear terms and conditions of the loan.
Both lenders and borrowers should ensure the loan’s repayment terms coincide with the Applicable Federal Rate (AFR), and that they understand how the loan may affect their taxes.
Another option here is to use hard money lenders.
Here you get the cash for a short term loan, say under 6 months.
The advantage to this is you can buy a house now if you find one you like and are waiting on a lump sum of money in the coming months.
You also don’t to have to worry about a credit check and you get a fast approval process.
But these loans do have a higher interest rate, usually higher than your credit cards.
Government loans can help make buying a house more affordable.
And there are a handful of options out there.
For starters, the Federal Housing Administration, offers FHA loans with down payment requirements of just 3.5%.
This is an easy way to buy a house without needing a lot of cash for the down payment, and is great for first time homebuyers.
If you are a Veteran, Servicemember, Reservist, or part of the National Guard, you could qualify for VA loans that have special advantages for servicemembers.
Finally, if you are looking to buy a house in a rural area, there is a rural housing loan program.
The bottom line is, take the time to research government loan options as these could be another way to help you buy the house of your dreams.
#5. Pay With Cash
Paying for a home with cash is one of the easiest ways to circumvent a traditional mortgage.
Although straightforward, paying for a home in cash means you’ll need to be prepared to have the exact amount upfront.
But in the long run, it can save you from debt repayments, closing costs, and needed a high credit score.
This method can also work for those expecting a big monetary gift, such as funds from a trust or an early inheritance.
This option is a newer one, but many have used this creative financing trick with success.
Jump on a crowdfunding site and see if people will be willing to give you money to help you buy a home.
You can look at this like you were asking friends and family for financial help.
The only difference is you also are asking strangers too.
The key here is to be honest.
You should not lie as to why you need the money or anything like that.
Doing so could get you into serious legal trouble.
Instead, be honest and explain why you need the cash and what you will do with it.
You may be surprised with how many people will donate you some money to buy your primary residence.
#7. Discuss Seller Financing
Seller financing refers to a formal arrangement where the property’s seller agrees to serve as a lender to a potential buyer.
Sellers may offer this option to potential buyers to cut out third-party lenders and retain property rights should the buyer default on the financing agreement.
A seller-financing arrangement can sometimes be cheaper than a traditional mortgage because potential buyers have more leeway to negotiate the terms, including the repayment schedule, the deposit, or the interest rates.
Properties with shared equity are becoming more popular because they allow buyers to obtain homes at affordable rates.
When a property has a shared ownership agreement, the ownership is split between two parties, an investor and the buyer.
These two parties agree to specific percentages of the property’s ownership, but the investor will usually hold a higher percentage.
This model allows buyers to reduce their initial deposit because the investor will contribute more to the overall percentage of the down payment.
The investor will also be entitled to profits made from future sales or the property’s appreciated value.
Purchasing a property with shared equity can be an excellent way for people buying their first home.
It can also be used by buyers with a poor credit history, or low-income buyers to get on the property ladder without as many financial risks.
A twist on the idea above is to simply buy a duplex.
When you do this, you can live in one half of the house and rent out the other unit.
The rental income you earn from the other unit will pay for a portion of your mortgage.
And if you can get a great deal on the house, in some cases it can cover the entire mortgage.
This means you can essentially live mortgage free.
During this time, you can save extra money for a down payment on another house.
And when you do decide to move, you can rent out the side of the duplex you were living in.
Now you have more rental income that will cover the entire mortgage on the duplex.
And if you are lucky, you might have extra income you can use to pay some of the mortgage on your new house too.
#10. Buy With Friends
A popular trend is to buy a house with friends.
Here, you get a friend and you both save and put down money for a house.
Then you simply split the monthly mortgage payment and other house related bills in half.
The biggest issue with this idea is if your friendship ends and one person stops paying, the other person is on the hook for the entire mortgage.
Otherwise, you destroy both credit profiles in the process.
#11. Get Paid To Move
Many smaller towns throughout the country offer people money to move.
This is because these small towns have seen many people move out and are looking to reestablish themselves.
The amounts vary by city, but they pay you $10,000 or more.
Some even throw in extras like free admission to cultural events or free Airbnb stays so you can explore the town before moving there.
You do want to pay attention to any conditions attached to these offers.
Some simply give you the money to move there.
Others require you earn a certain amount of income or you need to be employed by a local business as opposed to remote work.
#12. Buy A Mobile Home
Another common way for purchasing a home without a mortgage is to reconsider the type of home you want to buy.
Rethinking the type of home allows you to opt for something a bit cheaper or that you can buy with cash.
For example, mobile offers offer a cheaper alternative than a single family home or townhouse.
The downside is owning a mobile home is a little different than owing a traditional house.
With a mobile home, you buy the trailer and then have to pay a rights fee for the lot of land the trailer is on.
Essentially this rights fee is a monthly rental fee.
So while you aren’t a true homeowner in the traditional sense, you still do own the home, just not the land it sits on.
#13. Consider A Tiny Home
Tiny homes are popular alternatives because they’re much cheaper than purchasing a single-family home that requires a mortgage to supplement its high market price.
These homes offer the same benefits as any other type of house, including adequate living space, yard space, ideal locations, and much more.
It’s just that all these features are packed into a house that is 600 square feet or smaller.
So if you feel you could comfortably live in a small house, this might be the best option for you since you can buy one for as little as $20,000.
#14. Buy A Prefab Home
Manufactured homes, or prefab homes, are another alternative to help you save money.
Since these houses come mostly preassembled, the labor costs are minimal, saving your thousands of dollars.
Another benefit is they tend to be on the leading edge of energy efficiency, meaning your utility costs will be low.
The downside is if you are building a prefab home, you need to find the land to build on and this costs money.
Still, going this route is a way to lower your housing costs and making homeownership a reality.
#15. Find A Permanent House Swap
A permanent house swap refers to switching or ‘swapping’ properties with someone else who has a property of similar or comparable value.
This can be someone in the same area as you, or on the other side of the country.
Although this may be a less conventional method to obtaining a home, it allows you to forgo the selling process if you have a property you want to get rid of.
It also prevents you from picking up another mortgage, especially if you’ve just spent years paying off the previous one.
To make this easier, there are websites for people who list properties around the world that are open to house swaps, so that you can connect easily with other potential buyers.
Finding a permanent home exchange can be challenging since the practice is still gaining traction.
Still, if you’re lucky enough, it can be a rewarding way to get into a new home without going through traditional lenders for a mortgage.
There are 15 creative ways to buy a house.
Buying a home is a huge financial decision and because of this, you need to take your time with it.
Think about your current financial situation and your financial goals when making this decision.
The last thing you want to do is destroy your finances by becoming house poor.