If you are having difficulty getting a standard home loan, you may need to consider other options. These loans can help you break into the property market in the short term, but they do come with serious risks.
The risks
These loans often:
- have higher interest rates
- have more fees or charges
- force you to take out additional loan insurance
- leave you worse off over the full term of the loan.
Think very carefully about any of the following types of loans before signing.
Types of loan
Non-conforming loans
This can help if you can’t get a standard home loan because of poor credit history.
Low-document loans
This can help if you’re self-employed and can’t show records of your income over a long period.
Low-deposit or no-deposit loans
This can help if you can only afford a small deposit or no deposit at all.
Long-term mortgages
This can help if you can’t afford large repayments.
Long-term mortgages let you pay smaller amounts over a longer period (up to 50 years).
Vendor finance
The property’s seller might offer you a private financial arrangement, such as a wrap loan or rent–buy scheme.
The seller offers you finance, and will usually keep the title in their name until you’ve paid off the loan. Because you aren’t legally the owner, you have limited rights.
The seller will often have their own loan to pay off. If they default on their loan, you will:
- lose possession of your home
- lose any chance of owning it
- be unable to get your money back.
This is an extremely risky option. Think very carefully before you agree to anything.
Reverse mortgages
A reverse mortgage lets you borrow money against your home, without having to make regular repayments.
You don’t make any repayments until you:
- sell your home
- move out
- pass away.
The total amount must then be repaid, usually from selling the house.
If you’re 60 or older, you can get independent advice on reverse mortgaging. Contact the National Information Centre on Retirement Investments (NICRI).
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