The traditional way of funding a new property is by taking out a mortgage. However, a conventional mortgage is not the only way you can pay for your new home. The fact of the matter is that not everyone is eligible for a mortgage through a bank. Should you give up and not invest in real estate just because you do not qualify for a standard mortgage, or should you look at creative ways to fund your property?
The importance of investing in real estate
Before we look at innovative ways to fund your real estate purchase, let’s take a brief look at why it is critical that you invest in real estate as soon as you can:
By way of a brief synopsis, experts believe it is relevant to acquire real estate on a regular basis because it offers the investor a stable and attractive income via the monthly rental vehicle. In other words, you can rent out your property for a monthly figure which can either used to repay the loan taken out when buying the property or if you paid cash for the house, it can be utilized as your monthly income.
Furthermore, the real estate’s value will never depreciate. It will always appreciate. Thus, the property’s value will be assessed at more than what you originally paid for the property. Therefore, purchasing property is a solid way of increasing your wealth portfolio.
Ways to finance the purchase of your property
Apart from the traditional way of financing a home via a traditional mortgage, here are a couple of inventive ways to pay for your property:
In a nutshell, a securities-backed mortgage or a securities-based loan “allow an investment firm to extend an investor a line of credit without selling the assets backing the loan, much as the once popular home equity line of credit (HELOC) allowed banks to extend credit to homeowners without touching the underlying home.”
The advantage of this type of credit is that the lender knows how much your stock portfolio is worth at any given time; therefore, you will be granted the loan in a short space of time. On the other hand, the downside with this form of credit is when the price of your stock portfolio goes down, you might be required to provide additional collateral in a short space of time.
Apart from applying for a traditional mortgage from a bank, one of the other means of funding the purchase of your new home is to borrow money from your family. In essence, a family mortgage can be a win-win situation for both parties. For example, if you borrow money from your parents, you can pay a higher interest rate than they would normally get from the bank, yet lower than a standard mortgage interest rate.
Therefore, they would receive a greater return on their investment, and you would pay less for your loan. Furthermore, there would be no additional tax implications as long as a legal contract is drawn up and the monthly interest is being charged on the loan amount.
On the other hand, the biggest disadvantage of borrowing money from family is what would happen to your property should they need their money back in an emergency. Before you consider a family loan, you need to address the likelihood of your family needing their money back as well as what will happen to your property should this scenario arise.
As an investment tool, you cannot go wrong by investing in real estate. It will not disintegrate, nor will it reduce in value. Finally, all things being equal, you will create a retirement fund that will last for as long as you live, and then your children will be left with a basis upon which they can grow their wealth portfolios.