Tips for Paying for Your Next Home

Today, it’s highly uncommon to purchase a home without borrowing at least something. Mortgages are traditional, safe ways to pay for a home. The bank gives you the funds, and the payments will be the same for the next several decades. Plus, any interest you pay can be deducted from your taxes. However, there are several reasons someone might not want a mortgage. Some might not qualify, and others might want to look at the options. Luckily, there are a few non-traditional methods.

Turn to Your Life Insurance Policy

If you have life insurance, you might consider selling it to get cash. Before choosing that option, it’s a good idea to research how a life insurance payout works. It’s easy to get your estimate and discover your policy value in seconds to understand your life insurance payout. With a policy such as whole life, you can also look into borrowing against it. This insurance type does not have an expiration date, and the term lasts for the insured person’s lifetime. Any money greater than the necessary funds for the death benefit can be invested by the company, which offers a cash value.

You can think of the cash value as a savings account. Once the invested money has increased the death benefit, you can also borrow against the cash value, which is tax-free. A loan against the policy does not affect your death benefit. However, the company will use the policy as the loan collateral. Suppose you cannot pay the amount back. In that case, the company will take possession of the policy, and your beneficiaries will not receive a death benefit.

Consider Rent to Own

Rent to own might be a good option if you have a large enough down payment that it is worth it to the seller. For instance, perhaps part of the rent each month goes toward buying that house once the contract ends. Or the seller could increase the price of the home, so it is worthwhile. That’s because the seller would be essentially giving you an interest-free loan while you’re in the house.

Borrowing from Your Retirement Funds

If you have money in retirement accounts such as the IRA or 401(k), you might consider borrowing from yourself. It can be useful if you need funds for the short-term for the down payment. Remember, though, that if you are less than 59 and a half years old, the funds come with a 10 percent penalty. Plus, you’ll owe taxes on the money. If you quit your job, you’ll have to repay the money within 60 days.

Still, if you can live with the short-term hit without hurting your future nest egg, the process could be worth it if you can replace it sooner than later. It’s often best to borrow from your Roth IRA than your 401(k), and that might be good if you are purchasing a home for the first time. Roth funds come from after-tax money, so you will only pay taxes on earnings. Since the housing market is so volatile, it’s best to make sure the home is a good investment first.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes