Many have wondered, “Can you buy a house with a personal loan?” and a quick answer to that is yes. Now, before we throw more light on it, there are some basics you need to get. For starters, personal loans are not attached to collateral since they do not usually involve borrowing so much money. However, their interest rate may be higher even though the loan term is shorter in comparison to others.
That being the case, your ability to buy a home with a personal loan lies within how much is involved. Do you already have savings you are going to attach to it or everything will come from the loan? If it’s the case of the latter, then it’s the more ideal situation. Take for instance if you’ve saved up to $15,000 and the house you’re looking to buy is $25,000. Then a personal loan can cover the $10,000 cost that is required.
Sellers and Lenders Behavior towards Personal Loans
Sellers, on the other hand, are more interested in getting the pay for the house at its closing and nowhere the money was gotten. If the amount you’re borrowing is small, then there may be no need to go for a mortgage since lenders may be less willing to offer a mortgage of $10,000 due to the cumbersome process it involves. If the amount was around $50,000, then it would’ve been a different ball game. Therefore, obtaining a loan to finance your house may not look bad after all.
Many lenders prefer a potential borrower who can contribute their own savings or down payment to what is being borrowed to buy the house. Some instances are an initial 5% in savings of the house’s purchase price for a low-income earner and thousands of dollars for high-income earners. This ensures that you have your own money to cover legal fees, stamp duty and others that will be levied.
The Back-Up Plan
Having obtained the loan, you need a backup plan that will enable you to pay the monthly income while also making some profit on the side. Here, you need to know what to do with the house asides from living in it. How do you intend using the same house to repay your loan, cut the interest rate, and make returns in order to re-invest in something just as lucrative?
One approach that can work, is renting the house for $400 to $500 a month. In the same manner, you could improve on the home and place it on the market again. Let’s say if the total expenses including the loan hits around $35,000, there may be a good offer of $60,000 if not more for the same house. This way, you would’ve successfully paid your debt on time and saved yourself the interest rate.
What to Consider Before Obtaining a Personal Loan to Buy a House
Before you can go ahead and obtain a personal loan, you need to be prepared in order to increase your chances of getting the loan which also ensuring that you get the best interest rate.
Know the Requirements:
There are several requirements lenders have before issuing loans and some of these include:
- A rental history which can be proven
- A credit history showing little or no debt
- Some savings to back up what is being lent
- A high income in order to afford to make repayments
1. Know Your Credit Score:
Alternatively, personal loans are issued based on one’s credit history, their monthly income, and how stable it is. Therefore, if you have a good or excellent credit score, it may be much easier and faster to obtain the loan. However, you may need to clear current debts in order to improve your score and stand a better chance of obtaining such loans.
2. Weigh Your Lending Options:
Some of the best lenders for personal loans can be found in the U.S. and there are a lot of options online. Therefore, scan through the market before finally making the decision to obtain the loan. It may be a small amount that is borrowed, but you need to ensure that the interest rate and the fee to be paid does not break your bank in the process.
Other Options Asides from a Personal Loan
The unsecured nature of a personal loan makes it easy to be misused and as such, there are better options you can try such as:
The rates are lower in comparison to personal loans. The latter is as a result of collateral which will be required. Likewise, the interest could be deducted as a tax which makes you consistent in making the monthly repayments. You can also get higher amounts with a mortgage even though your house will be used as collateral in case you default in payment.
Other options include:
- FHA loans
- Alternative Lenders
- Down payment assistance programs
You too can own a house from a combination of your personal savings and loan obtained from a bank or peer-to-peer lending platforms. Whether it’s for a house or to finance a car, the best deal is settling for something that will enable your home investment to yield a profit.