Buying a home is a huge investment, and it can take years to save up enough money for the down payment. And after that, you still have to pay a large sum each month for your monthly mortgage payments. It can be hard to come up with the money to finance your home, but there are some alternatives out there that make it easier for you. In recent years, new ways to finance a home have come out that try and balance out the risk for the borrower.
First Time Home Buyer Financing Benefits
First time home buyers have access to some benefits that other people shopping may not have, including lower down payment and tax breaks. You also don't have to be buying your first home to be considered a first time home buyer. In special cases, like not owning a primary residence in the past three years, you can still be a first time home buyer.
If you get a loan, such as an FHA loan, through a first time home buyer program, you can get a house with as little as 3.5% down. Just remember that the money you don't put down will go into your mortgage and gain interest over time. Also, if you put less than 20% down, you will have to get mortgage protection insurance , which can add to your bill.
Each state has different programs for first time home buyers and can give grants or assistance with a down payment. It's worth checking out to see if you qualify!
Finance Your Home With Shared Equity Mortgages
Shared equity mortgages can help make financing a home more affordable. Companies like Chord help you pay your home's down payment and becomes an investor in the house with you. They understand that a home is an investment and, like any investment, there's a risk in buying one. That's why they take on that risk with you. If you're struggling to come up with a down payment, they will help you by putting in some money with you.
And these mortgages don't act as a loan, so you don't have to pay them back until you sell the home. When selling, you share some of the profits with them. Saving money on your down payment can help you focus that cash elsewhere.
Shared Ownership
In a shared ownership setting, like with shared equity mortgages, you will become an investor in your property with someone else. However, a shared ownership model will allow you and the investor to own the entire home. This will allow you to buy more of a home than you usually could.
With shared ownership, you'll typically get a mortgage for the amount of the house you will purchase, which is between 25-75% of the home usually. The investor will cover the rest. You will also have to make monthly discounted rental payments to the other owner.
Over time, you can start to buy out the other investor, usually in increments of 10%. This will let you slowly "staircase" until you own 100% of the home. Be careful because this method can still have downsides. Staircasing your way up to 100% ownership can be expensive. Every time you buy an extra share of the home, you will have to pay fees to get the house valued and any additional legal fees. This method can make homes more affordable to you, but also has its own downsides.
Rent to Own to Finance Your Home
Another process that can help you buy a home, especially if you need financial assistance, is a rent to own option. In this model, you can sign a lease agreement that includes the opportunity to buy the home at a set price at a later date. You will agree on the home price ahead of time, and then you can choose to purchase afterward. One of the benefits of this is that often, part of your monthly rental payments will go towards buying part of the home. It's an option worth looking into, but be careful and make sure you understand the terms.
While owning a home can be fun and exciting, and these methods can make it more attainable, you always want to make sure your finances are in line. You should look and make sure you can afford the down payment, closing costs, and the monthly payments you'll have to make. You'll also want to make sure you have an emergency fund that can cover six months of expenses. Remember to have a budget ready too so that you can track where your money is going each month. Also, make sure that you check your credit. The higher your credit score, the better your odds of getting approved and getting a better rate.
That being said, alternative financing options aren't always for everyone. Each offering should be judged stringently before committing. If the numbers don't add up in your particular case, you may just have to wait and save up for the traditional down payment.
