Personal Loans for Real Estate
Using a Personal Loan to Buy a New Home
Many home buyers struggle to afford a down payment on a house and need alternative funding. In this day and age, prices of real estate are skyrocketing while salaries are staying pretty much the same. Because of this, many people look to personal loans in order to provide a downpayment. This is typically not a great idea. Instead, home buyers should consider other financing options. These include FHA loans, alternative lenders, down payment assistance programs and various other options that are less costly or less risky than personal loans.
Should I Get a Personal Loan for My Down Payment?
Using a personal loan for a downpayment is generally frowned upon by most Mortgage Lenders. They generally don’t allow personal loans to be used and prefer you not to obtain a down payment from another lending institution. The reason is that using a personal loan can defeat the purpose of the down payment contribution. Since payment is supposed to show that you’re investing some of your money, it defeats the purpose. This makes lenders uncomfortable as it gives them reason to believe you can’t afford the down payment.
Personal Loans are often the last resort option if you have exhausted all alternatives. Unsecured personal loans are typically better for home owners with lower credit as the lenders do not run a hard credit check during the pre-qualification process. The downside to this is that the APR’s are typically higher as there is more risk involved for the lenders.
Personal loans can also put one in debt, however if used properly, it can be a tool to also get yourself out of debt. How Debt May Lead to Long-Lasting Stress can help you understand how to get debt free, and the added health benefits that come with being debt free. So it may be a better tool to use prior to purchasing a home then for a home, as it can help you clean up your debt and credit.
Cons of Personal Loans
Online Personal Loans are for those who cannot receive standard loans from a bank. Typically this is because most banks require some sort of collateral in case the borrower defaults on the loan. Unsecured personal loans don’t require collateral. This coupled with the soft credit checks mentioned earlier are reasons for most consumers to use these types of loans.
Personal loans are good to get for things like consolidating your debt, or making large payments, however it is not advised with regards to real estate. We advise you to get a loan from either a bank, mortgage lender, or FHA lenders. Only try to receive a personal loan as a last resort for real estate purchases.