If you’ve been holding off buying a home because you don’t want a mortgage, you aren’t alone. Carrying a large debt for the next 30 years can be scary. In some cases, borrowers just don’t qualify for a mortgage, so they think they will never be a homeowner.
Luckily, there are ways you can buy a home without taking out a mortgage whether you can’t qualify or just don’t want one. Granted, it does require a little bit of sacrifice, but it will save you thousands of dollars in interest and closing costs in the end.
Buy a Small Home
If you have cash set aside, one way to keep costs down and within your cash budget is to buy a small home. It might not be your dream home or even ideal for very long, but it will save you money in the end. Here’s how you can use it to your benefit.
You buy a small home and pay cash for the entire cost of it. You live in the home for a few years and then put it on the market. You get 100% of the profit since you don’t have a mortgage you must pay off. If the home appreciated, you have a higher cash flow and can now buy a larger home without taking out a mortgage again.
Use Seller Financing
If you don’t want a traditional mortgage or can’t qualify for one, but cannot afford to pay the full balance of the home’s price in cash, you may use seller financing. This isn’t a mortgage, but rather help from the seller to buy the home. The seller will require a down payment and then will be the lienholder for the remaining funds you owe. Sellers can set their own terms, which may mean you can qualify even with poor credit.
Many sellers will require regular monthly payments, much like a mortgage, but you don’t go through the traditional bank. The seller can set the terms of the loan. This may mean making regular monthly principal plus interest payments much like you would with a mortgage. Some sellers may get creative with their terms, though, especially if you have a unique situation. You have the greatest amount of flexibility with seller financing, so you can use it to your advantage to meet your terms.
Lease to Own
Some sellers also offer the chance to lease a property with the option to own by a certain date. In this situation, you pay the owner a down payment of their choosing. You then pay monthly rent, as you would if you were just renting the home. This usually goes on for one to three years. Some of the money you pay towards the rent will go towards your purchase of the home, if you decide to exercise this right.
Once the rent period ends, you can decide if you want to purchase the home for the predetermined price. If you don’t buy it, the extra money you paid towards the rent and/or purchase of the home stays with the owner, so you’ll want to give this situation careful thought before moving forward.
Save Your Money
Of course, there’s always the option to put off buying a home until you saved enough to pay cash. Depending on the cost of the homes in your area and your ability to save, this could take many years. The earlier you start saving, the better.
A few tricks you can use to save more include:
- Live off one income – Use your spouse’s income purely for saving for a home. If you live as if that second income doesn’t exist, you will be able to save for a house much quicker.
- Sacrifice ‘extras’ – Try going without nail appointments, coffee shop stops, and spending sprees. Bank that money you would spend and use it to buy the home of your dreams in the future.
- Get a second job – While not ideal, getting a second job can put you that much closer to saving for your home. Today there are many opportunities to work from home or even own your own side hustle that helps you save for a home.
It is possible to buy a home without a mortgage. Whether you can’t qualify for a mortgage because of a low credit score or you just don’t want the burden of a large loan looming over your head, there are ways you can get it done, you just have to think outside of the box.