No mortgage? That seems too good to be true, especially in these days when mortgage rates have surged and many applications have not been approved. Usually, a buyer or investor does not have sufficient cash flow and a mortgage enables purchase of property of a higher value with a down payment partial deposit, followed by monthly repayments including interest. However, these repayments can sometimes go on for a lifetime – hence the old French meaning of mortgage as “Dead Pledge”!
In the current scenario, however, there are other means of buying property without a mortgage, as the letting agents in Witney can explain. A few suggestions are given below:
Cash payment is the obvious alternative to taking a mortgage. However, with inflation and the cost of living, it is rather difficult to put down such a large sum of money. Unless the buyer has saved enough money, inherited a large sum or looks at buying in an affordable area, it is not likely that payment by cash can be made. The benefits of cash payment are not having monthly mortgage + interest payments, saving on closing costs, a quick sale and being debt-free. The disadvantage of cash payment is that the money is tied up and there may not be sufficient cash to deal with unforeseen calamities and expenses. At times, investing the money in a variety of portfolios can bring forth higher gains than the interest saved on a mortgage.
The seller extends enough credit to the buyer to purchase the home. The buyer then makes regular payments to the owner until the full payment (less any deposit if any) is covered. The property title will usually be kept in the owner’s name until the buyer completes the payment of the agreed sale price. Then the property will be legally transferred to the buyer. However, while the instalment payment is ongoing, the buyer has the right of possession of the property. This type of financing can be mutually beneficial to the buyer and seller as it will not involve banking costs. While this type of agreement is usually between people known to each other, such as family members, the transaction should be documented with the sale, payment and other details mentioned in a Real Estate Purchase Agreement or Land Contract.
A feature by Oasis Living says, “A lease option agreement is a property contract that allows you to take control and profit from a property.” This agreement allows the buyer to lease the property for a monthly fee payable to the owner. There will be a downpayment deposit, with a fixed period for the length of the lease and the amounts of the monthly repayments. There is an option to purchase the home in the future for an agreed-upon price. When a lease option agreement is entered into, it gives the buyer the right to rent the property and benefit from the income.
The buyer pays for a share of the property (usually between 10% and 75% of the market value) and then pays rent to the landlord for the remaining amount. The monthly payment will include the rent and service charges including maintenance. A deposit for the share amount will need to be paid but it is generally lower than the open market. There is an option to buy more shares, known as staircasing, which can go upto 100%. Stamp Duty will have to be paid when the owned share equals 80%. Shared ownership properties are all leasehold based.
For experienced investors, flipping property and market tracking can be a profitable investment. The property is purchased off-plan (before it is built) by putting down a deposit of perhaps 20-30%. While it is being built, the price increases and, on completion, the buyer sells the property at the new value with a good profit. Of course, the risk is if the market value does not increase as hoped or if the demand in that area decreases. Research should be conducted to ensure that the property is in a prime location and to check out other properties under construction in the area.
These are just a few options to buy a house without a mortgage. However, before deciding on any of the above, the checks a normal mortgage lender would do should be carried out to ensure that the property is saleable. A property survey will show whether the construction meets the regulations. Homeowners’ insurance, even though not mandatory, would be an investment protection. So, it is still possible to own a home without obtaining a mortgage – you just need to see which option suits you best!