The Advantages of Self-Financing a New Home

Self-financing a home does not require a bank mortgage.

Self-financing a home does not require a bank mortgage.

For many home buyers, the large price tag associated with a home purchase leaves little choice other than to borrow money from a lending institution to finance the transaction. However, if you are fortunate enough to have a large number of assets at your disposal, you can consider financing the purchase on your own. Self-financing offers a number of key advantages.

No Qualification Issues

Self-financing a home purchase eliminates the need to go through the often-challenging mortgage qualification process. To qualify for a home mortgage, lenders scrutinize various aspects of your financial status, including your employment history, income, levels of debt, and credit history. This process can be stressful and may take several weeks to complete. If you fail to meet its specific guidelines, the lender may offer a mortgage with a higher interest rate or even decline your application.

Avoiding Interest

A major drawback with carrying a mortgage is the amount of interest you must pay over the life of the loan. For example, if you took out a 30-year mortgage loan for $200,000 at an interest rate of 5 percent, your monthly payment would be $1,073.64, resulting in total payments of $386,510.40. By self-financing, you would save $186,510.40 in interest. You could use the savings for other important purposes, such as financing your retirement or funding your children's college education.

Lower Purchase Price

A highly motivated seller, meaning someone who is looking to unload a home quickly, is often more willing to work with a buyer who has the means to self-finance rather than one that must go through the time-consuming mortgage process. The seller also doesn't have to worry about the possibility that the buyer's financing may fall through. You can take advantage of your strong position by using it to negotiate a lower purchase price for the home.

Peace of Mind

For many people, the thought of being in debt with a home mortgage for as long as 30 years can be a frightening prospect. By self-financing your home purchase, you won't have the worry of possibly losing your home if you fall behind on your mortgage payments due to an unexpected job loss. Not having to write a large check to a lending institution each month can also be a liberating feeling.

 

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