Purchasing a House with a Personal Loan: What to Know
Owning a house has its many advantages, but not everyone has the luxury of accomplishing such a milestone, especially if they’re low on finances. The good news is that this shouldn’t be a problem, because you can apply for a loan to buy a house.
There are many types of loans, and naturally, housing loans are used to buy a home. However, there’s another type of loan that can be used, which is the personal loan. A personal loan is different from a housing loan, so many people tend to choose the obvious option.
How is it possible that you can buy a house using a personal loan? This article will tell you everything you need to know. Read on below to learn more.
Buying a House Using a Personal Loan
Personal loans aren’t typically used to pay for a house. In some cases, though, there are exceptions. There are also instances where personal loans are a considerably better option than a mortgage loan.
Mortgages are the best option if you intend to get a standard house. It’s better than personal loans because they have shorter payment terms, and the interest rates are usually high, which puts any borrower at a disadvantage.
On the other hand, personal loans are your best option if the house you’re planning to buy is a smaller one, or maybe even a mobile home. Some lenders actually endorse personal loans for this purpose.
Just keep in mind that the home isn’t used as collateral for the loan, and the seller of the property will most likely close the deal because the sale isn’t as contingent as opposed to mortgage loans.
Personal Loans as a Down Payment
If you’re buying a house with a mortgage, your down payment is typically somewhere between 3% to 20%, depending on your lender and the current circumstances regarding the house.
You mustn’t use a personal loan as a down payment because chances are your lender won’t approve. The reason for this is that personal loans increase your debt-to-income ratio (DTI), which further deters you from getting approval. To put it plainly, it gives your lender the impression that you can’t manage your finances well.
How Personal Loans Affect Credit
There’s nothing wrong with getting a personal loan for you to be able to buy a small house, but it’s also vital to understand how this affects your credit.
Applying for any type of credit decreases a few points off your credit score, and lenders quickly notice this when looking at your financial statements. A credit score is essentially a number that determines how trustworthy you are regarding your finances. If you have a high credit score, you could get that loan faster.
A personal loan affects your credit score through your monthly payments. As long as you pay your bills on time, it will contribute to a higher credit score. Conversely, your credit score will go lower if you don’t pay your bills on time.
If this keeps up, you won’t be able to buy that home you’re dreaming of because you won’t get a financing option in the first place. You may keep the house, but your credit score is still severely affected.
To help with your payments, you can set up automatic payments. Some lenders even offer a discount on interest rates for borrowers who choose this option.
Keep an Eye on Your Credit
Regardless of the financing option, you choose to buy a house, checking your credit should be a priority.
It’s essential to keep an eye on your credit because it's the only thing that stands between you and the house. Make sure not to miss any payments because this affects your credit score negatively.
Personal loans can be used to finance a house if the house in question is considerably smaller. However, you should also maintain a good credit rating because it’s the determining factor in getting a loan or not. Make sure to keep this guide in mind as you plan your next move!
If you intend on getting a personal loan, you can count on Parkway Finance Company to be right behind you. Our loans come in different sizes, and the payment plans are also reasonable. Contact us today to discuss your options!