Apartment living is great -- for awhile. However, if you and that special someone of yours need to put down roots, a house is probably on your wish list. The obstacle standing in your way is that perhaps you don't qualify for a traditional mortgage. Maybe your credit score isn't high enough, you don't have enough saved for a down payment, or you just don't want to go through the hassle of qualifying. Don't let that stop you. You can get a home sweet home without a mortgage.
When a homeowner agrees to carry you, technically you don't have a mortgage, the owner of the house does. This method is also called owner carry back or owner financed. You pay the owner and he pays the mortgage company. Typically the owner gets a second mortgage on the property and keeps the proceeds. That gives him the difference between the market value of the house -- what you agree to pay -- and the first mortgage.
Check with an attorney on how and when the deed to the house will be conveyed to you. Also determine how you'll know the owner is still making payments to the mortgage company and not pocketing the cash. A danger is the mortgage holder defaults on the payments, the house goes into foreclosure and you're out in the cold.
Lease to Own
Leasing to own is similar to the owner-carry financing in that you're buying a house without a mortgage. You lease a house, and the lease payment is split. A portion of the payment goes toward an agreed-to down payment on the house. The other portion is the payment for living in the house. At the agreed-to date -- usually from one to three years later -- you apply for a mortgage to buy the house outright. Contact a lawyer to review and explain the documents for a lease-to-own situation. If you don't make the purchase, you may forfeit the down payment. Another downside is that there may be a limited inventory of homes offered on a lease-to-own basis.
If you're handy and have the skills for house renovation, it may be possible to find someone who will obtain the mortgage for a fixer-upper. You live in the house and provide the sweat equity to do all necessary repairs, improvements and renovations. The cost of the materials may be split between the two of you, prorated or paid by your partner. After the home has been renovated, it's sold and the proceeds are distributed to you and your partner after the mortgage has been paid off. The danger here is you have to trust your partner. Additionally, the housing market has to be reasonably strong to take advantage of flipping.
Even though it's probably not likely you have enough cash saved to buy a house outright, it is a way to get a house without a mortgage. Some sellers might be motivated to accept a lower offer because they don't have to wait for financing to be approved. Consider if the house is your best option for investment, though. Compare the mortgage interest rate, rate of value increase in homes where you plan to buy, and the rate of return on stock market and mutual fund investments.
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