Do you believe a mortgage is the best solution for buying a home? If you do, 14% of Americans would disagree with you.
This percentage comes from a May 2023 survey conducted by GOBankingRates. Of the 1,045 Americans surveyed, 14% of overall respondents said they disagree or strongly disagree with taking out a mortgage to finance a home purchase.
What would cause a buyer to hesitate about financing via a mortgage? And if not a mortgage, what other options are available to those who want to buy a home? Let’s look at some reasons why 14% of Americans disapprove of mortgages and four reasonable alternatives.
Why Are Americans Reluctant About Mortgages?
One reason why there is mortgage skepticism among Americans boils down to trust.
Dino DiNenna, broker and realtor at Hilton Head Real Estate, said this lack of trust can be cited back to the 2008 financial crisis and how it impacted the public’s perception of the mortgage industry. Other factors to consider include personal financial circumstances, individual risk tolerance, media coverage about predatory lending practices or mortgage scams and complexity of mortgage agreements, many of which contain fine print and unfamiliar jargon.
But if 14% of Americans disagree with a mortgage, Rose Krieger, senior home loan specialist for Churchill Mortgage, said this is because a mortgage is not a one-size-fits-all product.
“I think a primary reason some people are reluctant to take out a mortgage is a lack of communication on the part of the loan officer,” Krieger said.
Krieger acknowledges not all loan officers are created equally. This means buyers should research and interview loan officers to make sure they will listen to your financing wants and needs and have a wide base of knowledge of the available different programs.
4 Mortgage Alternatives
Don’t want to take out a mortgage? Consider exploring these financing alternatives.
Cash Purchase
Buyers may consider the option of making a cash purchase. DiNenna said this is where the buyer accepts the property outright with available funds.
Paying in cash does eliminate the need to take out a mortgage. However, DiNenna said it requires having a substantial amount of savings readily available. And while the buyer avoids interest payments and debt by making a cash purchase, they’re not entirely off the hook from every other payment. Krieger said buyers who go this route are responsible for paying for property taxes and homeowner’s insurance. This is because they would not have the escrow account set up through their mortgage provider which automatically handles those payments.
Seller Financing
What is seller financing? DiNenna said this is where the seller acts as the lender. They may offer financing options directly to the buyer. This creates a more flexible arrangement that may be suitable for buyers unable to secure a traditional mortgage.
If you do decide to use seller financing, Krieger recommends having a real estate professional review the contract. This ensures the protection of all parties.
Rent-To-Own Agreements
Another option buyers may explore is a rent-to-own agreement.
“This allows individuals to rent a property with the opportunity to purchase it later,” DiNenna said. “A portion of the monthly rent payments is often allocated toward building equity or a down payment.”
Loan From a Family Member
Mason Whitehead, branch manager for Churchill Mortgage, has seen several situations where a family member — like a parent — loans money to a buyer. Some parents even put a lien on the house.
“They collect interest over time and eventually the loan is paid back or forgiven,” Whitehead said. “The thought process centers around keeping all the funds within the family/estate. For families with enough reserves to do this and not be cash strapped, it can be a good option.”
Regardless of the mortgage alternative you choose to buy a home, DiNenna recommends carefully evaluating the terms, interest rates and potential risks associated with each option. Buyers may do this alongside financial advisors or real estate professionals and use their guidance to determine the best alternative based on their financial situation and goals.
More From GOBankingRates
Methodology: GOBankingRates surveyed 1,045 Americans aged 18 and older from across the country between May 1 and May 4, 2023, asking seven different questions: (1) Please state your level of agreement for the statement: Mortgage is the best solution when buying a home.; (2) Have you ever personally owned an electric car?; (3) How likely are you to buy an electric car in the next 5 years?; (4) When was the last time you were in the market for a new car?; (5) Knowing it will save you gas money, how much more would you be willing to spend on an EV over a similar gas powered car?; (6) What area is your biggest concern during retirement planning?; and (7) What financial steps have you taken for retirement? (select all that apply). GOBankingRates used PureSpectrum’s survey platform to conduct the poll.