How Can I Use a Personal Loan to Pay for Expenses for My First House?
First of all, when people refer to a personal loan, they usually mean an unsecured loan, one that isn’t backed by an asset.
When a lender gives you a personal loan, they’re doing so based on your current salary, salary history, credit rating, your history of paying back other loans, and faith.
Personal loans are generally harder to get than a mortgage or a home equity loan or line of credit because the lender has no way to recover the money if you can’t pay. If you can’t pay a mortgage, they can take your house. A car loan? They can take the car.
A personal loan is like credit card debt; you just have to pay it.
If you do have the kind of credit score and history lenders love, here’s how you can (and possibly can’t) use a personal loan for expenses related to your house.
You probably can’t use a personal loan for a down payment for your first house
It’s unlikely that you’ll be able to borrow enough money to make up a down payment. Even if you can, it might not be a good idea.
Though you may have fallen in love with a house, and you want it right now even though you need another year to save for the down payment, we’re going to let you in on a secret all Realtors know: another house will come along.
It’s highly unlikely that everyone in your city will stay put until you die. There will be other houses and waiting until you can really afford one is probably a better prospect.
But you can use a personal loan for furniture or appliances
You might be able to wait on buying the perfect sofa, but it's hard to live without a stove if the appliance doesn't come with your first home.
We hope you've saved money in anticipation of all the little expenses that can come up when you own your home. But we get it—that's often easier said than done.
If you really can't wait and you need a loan for a dining room table or a dishwasher, consider financing through the store. These days, a lot of sellers offer loans for six months or a year "same as cash."
That means that as long as you pay off the loan in the time agreed, you won't be charged any interest.
Bonus: If you pay on time and pay the loan in full, that history may raise your credit score.
You could also use one for home improvement projects
When people consider a loan for home improvement or an addition, they often think of a home equity loan or line of credit first. Like your first mortgage, those loans are secured by your home, and you may be able to borrow based on the post-renovation value of your home.
If you don't have enough equity in your house to borrow more, or if you just don't want to use your property to back the loan, a personal loan is an option.
Start with your current bank, and make sure to check your credit score before you apply. The better your score, the better interest rate you may get on your loan.
As with any loan, you should consider your options carefully before taking out a personal loan.
If you aren't able to pay off the loan, you could damage your credit. Adding the loan payment to your monthly expenses could also make you feel spread thin.
But as long as you know what you're getting into and the loan seems like the best way to pay for it, we wish you the best!
Still have questions? Check out our tips for first-time home buyers for answers.