Alternatives to Home Loans
The housing sector was the worst hit sector by the 2009 financial crisis, and as a result, most banks have formulated stringent policies that limit the number of people who can qualify for a home loan. Many lenders have turned down people with poor credit ratings (credit rating is a segment of indication at how efficient you are at paying your bills). Nowadays, failing to payback your loan on time ruins your credit score. Another reason why people cannot qualify for a home loan is because they own a small enterprise that has irregular returns. Due to the harsh economic times, most people are living on payday loans, and barely have sufficient personal savings to buy a home. However, there are other alternatives that can assist potential home owners in getting their dream homes.
1. Credit Unions: Credit unions are different from banks in that they are non-profit making entities, that are owned by members. They have less stringent rules that permit members to take up a loan. Most credit unions are made up of members who have a common interest, or in the same profession. The first step of joining a credit union is looking for the one that suits your needs, and then learning its rules and regulations. If you are willing to become a member, fill out an application form, and pay the membership fee. Credit unions require members to be active for a certain period of time, and accumulate some substantial amount in savings, before getting a loan. These savings act as a security to the loan. Credit union loans have lower interest rates, and are easier to access.
2. Borrowing against a whole life policy: Funds accrue in a whole life insurance through making customary premium payments. The policy also earns annual interests and dividends. You can borrow a substantial amount of money against a whole life insurance policy. Cashing on this policy is easier, as you don’t need to go through the loan qualification procedure. The only disadvantage is that borrowing against a whole insurance policy decreases its face value, if you fail to pay back the loan.
3. Seller financing: This involves bypassing the bank, by making direct mortgage payments to the house owner. An official agreement in form of a promissory note that outlines the repayment schedule, interest rate, consequences of defaulting, principal amount, and other rules, is drafted.
4. Lease or rent to own: This option allows an individual an opportunity to lease or rent a property for a specified time, and buy it after that period expires. The monthly rent amounts are higher, compared to the market prices, as the extra amount is put aside to cater for the future down payment. This option is suitable for home buyers who cannot currently afford to buy a house, but are hoping to be financially stable within a short period of time.
Author Bio;
My name is Michelle. I am a tech writer from UK. I am into Finance. Catch me @financeport
