A home loan is one of the quickest ways to buy a home in today’s day and age. Fast processing by Banks and Financial Institutions, complete transparency, and tie-ups of real estate companies with banks has made the process of a home loan popular amongst young homebuyers. It is also the best and the most recommended method by finance professionals.
But is there a way to buy a house without a home loan? Maybe one doesn’t want to pay the high interest, spend a majority of their life paying back the loan, or perhaps their financial situation doesn’t qualify them for a home loan. Then how to buy a home without a home loan?
If this is the scenario, then there are two methods using which one can procure a home without a home loan. Both these methods have their pros and cons. They are, of course, not as convenient as a home loan nor as accessible. But they are still viable options.
Seller Financing and Long Term Investment are your two options.
1. Seller Financing
Seller financing is when the seller of the property agrees to receive the payment from the buyer in instalments directly. In return, they would withhold the property title until some point of the repayment or until the full payment has been made. It is essentially a direct EMI agreement between the buyer and seller, and they skip the middleman, i.e. home loan provider/ bank.
This seller financing has two main advantages:
- The buyer doesn’t need to qualify for a home loan and doesn’t end up paying the exorbitant interest to the bank. Thus, saving money.
- Both the buyer and seller save money on closing cost.
This option is quick, but the only caveat is that not all sellers would participate in such Seller Financing. It could be because they do not want to wait for some years before they receive the full amount. It could also be because the buyer may or may not be qualified based on their income to pay an EMI, and the situation comes with a bit of risk for the seller.
If one is lucky and they find someone, and they find a property seller, engaging in seller financing, then it is a reliable option if both parties trust each other.
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2. Planning & Making Long Term Investments
Now, if a seller doesn’t engage in seller financing, there is another option. Albeit, this is more long-term.
If you do not have the money right now, then you do have to give up another resource, i.e. time. When buying a home, there will always be a trade-off between money and time.
It is very easy to say that you should save up for a home and only then purchase it if you do not want to get into the hassle of a home loan. But just saving money is not enough. You can buy your dream home if you invest your savings wisely.
Smart investments compound your money long term, which substantially grows your wealth and is more or less adjusted for inflation.
Let’s look at an example.
In today’s day and age, a 2BHK home in a suburban area costs around INR 50 Lakh. If you end up taking a loan for the same, the down payment will be around INR 10 lakh, and the rest would be financed by the bank towards your real estate company.
This is not an ideal situation, as all the savings will end up in the down payment and the next 20 odd years of your life are a struggle to clear the home loan. With a 9.50% interest rate, for 20 years, one would finally end up paying INR 1.12 Cr. by the end to clear the home loan.
Now instead of this whole situation, if the parent of the homebuyer would have invested INR 3000, 20 years ago in a diversified equity mutual fund, then the story would have been different. At 15% CAGR, a corpus of INR 50 lakh would have been easily created by now. It is all about thinking long-term.
Now you can easily say, “I was too young to know that.”, or “My parents did not invest any money then, what do I do now?”.
The simple answer is to wait for your home purchase out and start investing NOW. If you are someone in your early 20’s and you start investing, then by your late 30’s you could have the ability to purchase a home upfront. It is better late than never. Also, it would save the extra ~50 lakhs you would spend on paying the interest on your home loan.
Buying a home is a tricky yet rewarding process. There are multiple ways to do the same. A home loan is a preferred method, but there are other options available too. These are the answers to your question of how to buy a home without a home loan. Make sure that the company you are purchasing from is reliable and that you have weighed all your options before taking the plunge.
Zen Estate Kharadi has convenient home financing options available for homebuyers. If you are interested, you can take a look and know more at https://mahalaxmipune.com/