How to Use Personal Loans for Mortgage Down Payments
Personal loans are sometimes used by borrowers to pay for a mortgage down payment. Most mortgage loans are not provided without a down payment that generally amounts 20 % of the total mortgage. This can mean thousands of dollars that many people are not able to afford. Taking out a separate personal loan may be the viable solution.
What Are Personal Loans?
A personal loan is an unsecured loan from a bank or credit union that is not secured by collateral. Because of that, interest rates on personal loans are generally higher than other loan types. Amortization varies per loan package, but interest rates are typically lower for those with shorter terms. There is another type of personal loan, which is money that you borrow from another person, such as a family member, friend, or anyone you know who is willing to lend you the money that you need for the down payment. This kind of personal loan may or may not have interest, depending on your agreement with the person. The repayment structure and terms also depend on what you and the other person have agreed on.
Using Personal Loans as Mortgage Down Payments
Whether you are going to take out a personal loan from a bank or from a person you know, you need to study your circumstances thoroughly. You need to understand that you will be taking out 2 separate loans, which means bigger risk on your part. The mortgage loan will take about 15 to 30 years of payment duration, while the personal loan with the higher interest rate will have to be paid for in less than 5 years. You must analyze your current finances carefully before you pursue this route. Weigh your income and assets versus expenses and liabilities so you can determine if you have enough financial resources to pay 2 loans comfortably.
Once you decide that this is something that you can achieve with little or no difficulty, you can then work on to find a lender who can provide you with a personal loan, ideally one that has the lowest interest rate in the market. It would be much better if you can find someone who is willing to lend you the money with no interest at all.
You also have to explain to the mortgage lender the source for your down payment and to furnish it with documents that provide details on the personal loan repayment plan.
Mortgage Down Payment Alternatives
Taking out 2 separate loans is a risky move. It is hard enough to pay for 1 loan; imagine how difficult it can be to make ends meet if you have 2 loans that you have to repay. Consider alternatives that you can use for the down payment. For example, you can sell a property like a car to be able to pay for the mortgage down payment.