Buying a home has been called the American dream. And fulfilling that dream has typically been limited to just a couple options, leaving many without a path to ownership. But new, non-traditional ways of buying a home are beginning to emerge. Can they help would-be house hunters who, so far, feel owning a home is out of reach? Let’s take a look.
Traditional Approaches to Homeownership
First, we’ll review the conventional options for owning a home:
Buy With Cash
For those with the funds, cash can be used to purchase a home outright. The number fluctuates, but June 2019 data reports only 16 percent of home sales were cash-only transactions.
Purchase With a Mortgage
Most home purchases involve a mortgage, which is a loan specifically for the purchase of real estate. This allows the purchaser to buy a home without paying the entire purchase price up front. Instead, the buyer pays a portion of the total cost, or down payment—usually 20% of the home price—and then repays the loan, plus interest, over many years, typically 15 or 30. With a mortgage, the bank or lender has a claim on the house in case the homebuyer defaults, or stops paying the mortgage. It is advisable to read more details on these mortgage bridge loans, they might turn out to be useful information for you.
Some people end up owning a property through inheritance when a family member dies. Inherited properties typically incur state and federal taxes, depending on the receiver’s circumstances. And these properties tend to be older, with greater maintenance needs.
Don’t Buy – Continue Renting
People also opt to continue renting instead of going through the home buying process. But for many, renting isn’t so much a choice, but a necessity if they don’t have the cash or ability to finance.
These traditional approaches aren’t always viable, though. While the circumstances are different for everyone, some common reasons these don’t work for potential homeowners include: lack of sufficient savings to make an upfront down payment, lack of financial readiness for ongoing monthly payments, and uncertainty about future plans.
Non-Traditional Ways to Buy a Home
Fortunately, the options for those looking to buy a home are beginning to expand, and new alternatives have already hit the market. They include:
In a rent-to-own agreement, you commit to renting a property for a specific period of time. You have a standard lease agreement, plus either an option to buy at the end of the lease or a lease-purchase contract, which requires you to buy at lease-end. You pay rent throughout the duration of the lease; sometimes, a percentage of this monthly payment is applied to the purchase price later. Some rent-to-own contracts require you to maintain the property as if you owned it, meaning you’re responsible for repairs.
Buying From an iBuyer
The iBuying process is meant to make both buying and selling a home much quicker and easier; the “i” stands for “instant.” iBuying companies purchase homes with cash at a price slightly below market value then perform some renovations and re-list the home for sale. iBuyers operate only in limited markets and with newer houses within certain price ranges. Interested buyers find homes for sale on the iBuyer’s platform, and they can schedule a viewing directly. The homes are already vacant, which makes viewing more convenient. Some iBuyers also offer mortgages for a one-stop shop experience or maybe probate loans can be considered too.
Another emerging homebuying alternative is the home co-investing model. Instead of taking out a mortgage from a bank, you partner with a company to buy a home. The co-investor, a company such as Haus, shares the equity in your property and offers discounted monthly payments in exchange. You get full ownership of the property with your name on title and make a minimum initial investment, then the co-investing company covers the remaining cost of the purchase. In addition to affordability, co-investing offers the flexibility to cash out your equity without entering into an expensive home equity line of credit. You also can buy more equity when you want.
If you’re thinking of buying a home and are frustrated with the limited options that exist, you’re in luck. There are now new ways to buy. With a little research and financial prep, homeownership—whether you decide to use a co-investor, iBuyer, rent-to-own model, or other emerging technology—may be well within your reach after all.