Although many mortgage loans adhere to standard practices, some may differ. These are known as Alternative Mortgage Instruments (AMI). These loans may differ in several ways. For example, an AMI may have a variable interest rate, interest that doesn’t amortize, or repayment terms that differ from standard terms.
Mortgages with non-standard loans may help borrowers who might otherwise not be able to afford the property or the monthly payments. Borrowers whose incomes do not grow as quickly as mortgage prices increase may want to seek an alternative mortgage instrument; similarly, self-employed individuals are often among those who choose to opt for an AMI. However, loan applicants should beware that the terms of AMIs may include higher payments in the future, ostensibly when the borrower expects to have more money to pay their mortgage.
When an AMI isn’t an option, there may still be other ways to pay for a new home. First, you may be able to borrow from a retirement account such as a 401k or Roth IRA. Borrowing from a 401k will incur a fee (usually 10 percent) and may be risky if you lose your job. It may be easier to borrow from a ROTH IRA, but if you cannot replace that money over time, your retirement fund will remain smaller.
Alternatively, you may be able to borrow against your life insurance policy if the coverage is high enough, but interest rates vary greatly. You may be able to repay this loan with future premiums, and the ability to use this loan for a downpayment on a home is worth it for many.
For those people who can afford a downpayment and a loan but struggle to qualify for a loan, the best option might be to find a cosigner. A generous family member may be able to make homeownership a reality for a young buyer.
Seller financing is a final option wherein the seller acts as a bank and the buyer repays the mortgage to that person. It differs from rent-to-own where part of monthly rent goes toward the value of the home during a predefined contract. Sellers may raise the overall price to make this arrangement worthwhile.
Alternative mortgage instruments can come in many forms. Generally, they can be advantageous for individuals who cannot get a conventional home loan, and AMIs all feature non-standard elements such as repayment options or interest rates.