Three Ways to Pay for a Home If a Traditional Mortgage Isn’t on the Table

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If you’re shopping for a luxury home, you’re no doubt focused on the location, size and price of the property. But how are you going to pay for that home? And what can you do if you are self-employed or highly leveraged and won’t qualify for, or don’t want, a traditional mortgage? Many buyers simply pay cash for their homes. According to ATTOM, a property-data provider, 33.12% of all sales nationally of single-family homes over $1 million in the second quarter of 2023 were cash deals.

But there are other ways to pay for a luxury home when a traditional mortgage product isn’t a good fit. Here are some creative alternatives to consider. These loans, known as investment credit lines, asset-based loans or margin loans, allow you to borrow against the securities you already hold in your brokerage account, whether they are stocks, bonds or alternative investments.

The advantages, according to Michael Silver, a certified financial planner in Boca Raton, Fla., are that they have no application fees or closing costs, no financial documentation is required and your credit score and debt-to-income ratio aren’t considered. “It’s strictly based on your assets," he said. “So, if somebody is highly leveraged or if they’re high-net worth but have bad credit, none of that matters." The interest rate on a margin loan fluctuates, however, and rising rates or declining asset values can result in the institution requiring the borrower to come up with additional assets to secure the loan.

Silver said the interest rates on margin loans are typically 1% to 2% over the federal-funds rate (which was between 5.25% to 5.5% on Oct. 6) and that most institutions will fund about 60% to 70% of the value of the pledged assets. These loans are beneficial