4 Alternatives to a Conventional NJ Real Estate Loan

If you are in the market to purchase a home but do not qualify for a traditional NJ real estate mortgage, there are other options

 

Whether you are a first-time homebuyer, a repeat buyer or an investor, you might have reasons that you wish not to, or cannot, get a conventional mortgage. Perhaps lenders do not view you as being the ideal financial candidate due to a foreclosure or bankruptcy in your credit history. Another reason can be that you have plenty of assets in the bank but cannot show sufficient monthly cash flow to convince a lender that you will be able to make the monthly payments, which is the case with many small business owners with unsteady income. Whatever the reason, there are other ways to finance large purchases such as NJ real estate. Below are a few of the most common options.

Seller Financing

Seller financing allows you to bypass the bank and make mortgage payments directly to the seller of the NJ real estate property. This agreement, which defines the principal amount, interest rate, repayment schedule, consequences of default and other terms, is usually represented in the form of a promissory note. A seller might offer financing in the instance he or she is having difficulty selling their property or in times of a declining housing market. However, most sellers will not offer this option for a few reasons including the fact that they do not own the house free and clear.

Rent to Own/Lease Option

A rent-to-own arrangement, also called a lease option, lease to own or lease to buy, allows a homebuyer to rent a property for a specific term with an opportunity to buy the property at the end of that term. With this, monthly rent payments are generally higher than market price, as the remainder is applied toward a future down payment. If the buyer chooses not to purchase the NJ real estate, the extra rent is forfeited. This can be a good option for homeowners who are not financially prepared to buy a home but expect to be within the next few years. Renting to own can also work for those who are not sure if they will be moving in the next three years and want to keep their options open. On the other hand, there are some potential problems with alternative financing that you should be careful of. However, if you are in the situation of being repeatedly turned down for a mortgage for a good reason, such as having a poor credit history or not really being able to afford a home, you will want to reassess your situation and figure out if now is the best time for you to buy NJ real estate.

Borrowing from Your Whole Life-Insurance Policy

A whole life-insurance policy is one that accumulates cash value over time as you make regular premium payments and earn dividends and interest. It is possible to borrow against this cash value and, when you borrow from your own whole life-insurance policy, there is no loan-qualification process. While this type of approach increases your borrowing potential, it reduces the value of the policy if you do not pay it back. You should ask your insurance company some questions including the interest rates on the loan as well as if it is taxable.

Borrowing from a Self-Directed IRA

One of the objectives of self-directed IRAs is to allow you to invest in a variety of nontraditional assets such as mortgages. A self-directed IRA is different from the Roth or traditional IRA that many know in that the investment options are much broader as allowed by the Internal Revenue Service. You cannot purchase a NJ real estate using your own self-directed IRA because of IRS rules against what is referred to as "self-dealing." However, someone who is not a relative or business partner can use self-directed IRA assets to lend you money to purchase a home.

 

The real estate market is changing rapidly and expanding into new avenues almost daily. Sometimes it can be very difficult to find the answers you need on a specific topic or issue. In times like these, you need a real estate professional who will provide valuable information and trustworthy advice. For more information on NJ real estate, call us today or click here to be connected with one of our top real estate specialists.