10 Ways To Buy A House On A Strict Budget

One of the current hot button issues in the housing industry across the nation and of course here in the Twin Cities is housing affordability. In other words, if you are currently a renter or living with Mom & Dad, buying a home can seem intimidating, expensive and sometimes even unfeasible. If you’d like to start building equity but are feeling this way or you know someone who does, I am here to tell you there are ways to make what may seem impossible, possible. Here is a list of 10 different ways you can use various resources to gain the key to home ownership.

Down Payment Assistance – There are over 30 programs locally that you may qualify for that unlock funds to help you cover closing costs, down payment or buy down the rate! There are even some programs out there that offer money for buying a home to renovate. Most of the programs require re-payment when you sell but there are some that don’t and the re-payment type often include 0% interest and only require that you own and occupy the home for a specified amount of time, usually 3-5 years. This can be a good bridge for a would-be homebuyer that has enough money for the down payment but not the closing costs or vice versa. If you want a list of programs and the requirements please see my contact info at the bottom of this blog.
Land Trusts – These homes work a little differently than traditional housing which makes them uber affordable. In essence, you are purchasing the house but the county or other public entity owns the land. The tradeoff of not owning the land allows for significant discounts to the tune upwards of 1/2 the value. These do require that you are an owner occupant and there are income requirements to qualify for financing. The downside of a situation like this is they don’t appreciate in value as much and when you sell, you agree to work with the landowning entity to keep the sale price affordable. Some trusts even require you give them the first right of refusal when its time to sell. Suffice to say, these can be a bit complicated but its still a way to own a home, build equity and take advantage of tax relief while avoiding the pitfalls of renting at a fraction of the market value of other, similar homes. See me for a list of land trust homes that are available in your target area.
Adjustable Rate Mortgages (ARM) – This is simply a mortgage that stays fixed for a shorter period of time than the normal 30 year fixed rate mortgage. They are usually originated at 3, 5 or 7 years but can be longer or shorter in some cases. After the time period expires, the rate adjusts to whatever the market rate is at that time. Another option at the time of expiration is to refinance the loan into a 30 year fixed mortgage or even another ARM. In exchange for having to make this decision sooner than normal, you get a lower introductory rate sometime bridging the gap between making a home work with your budget and not. In some cases, the rate can be significantly lower than the market rate. This can be a medium risk option to open doors that otherwise would not be open.
Slab On Grade Housing – Builders have responded to the affordability issue a little differently than they did back in 2006, the last time this was an issue. Instead of mass producing townhomes like they did then, they have developed a method for making a brand new single family home at or near the median home price. These homes feature everything a normal new build would except they lack a basement. Builders have developed clever ways to add the storage lost from no basements such as beneath the stairs, bump-outs in garages, crawlspaces and sheds. In addition to the savings offered by not having a basement, many builders are also offering insane financing discounts if you use their preferred lender. These factors combined are very helpful in making a home much more affordable but add in the tax relief for the first 12-18 months of ownership and the 1-2-10 home warranty and building a new home can be a wildly compelling option.
Contract for Deed (CD) – These were very popular in the 80s when rates were nearly 20%! It makes our current rates feel like child’s play. Anyway, a CD is a home you purchase directly from the owner and instead of them transferring the full title over to you like in a normal transaction, they keep a portion of the title in their name and a portion goes into your name. In other words, the seller becomes the bank so instead of getting a mortgage from a bank, you only have to satisfy the seller that you are credit worthy and will make payments on time. The seller does usually require a down payment that would be hard to walk away from to deter a buyer from failure to make payments. The savings can come if you were to negotiate better terms than what a bank would give you but truthfully, the real benefit here is if you cannot qualify for a mortgage, it allows for you to still buy a home.
Invite A Friend To Live With You – If you buy a home and rent a room to a friend, it significantly decreases your monthly obligation. It can be a great way to get started in home ownership but beware, your friend could decide to move out at some point and it can get uncomfortable if they stiff you on the rent. Still, this can be a way to ease into home ownership and a tactic many home buyers have used over the years.
Buy A Fixer – These can be hard to find but a tried and true way of buying a home on a budget. The real bad ones may not be habitable at the start but there are financing programs that will allow you to borrow money for renovations and if you’re handy, you can make out like a bandit when it comes time to sell by doing the work yourself. Be sure to have the home inspected and hire an experienced realtor to help you avoid other mistakes such as chain of title, unpaid liens and otherwise.
Live A Thousand Miles From Nowhere – Had to work in one of my favorite songs from back in the day by Dwight Yoakam. But seriously, if you are working for home and like the idea of country living, try a house off the beaten path for significant savings. There are a ton of tiny little towns just on the outskirts of the metro area that are often overlooked by homebuyers and realtor alike. For instance someone tells me they are okay with Hastings, MN then they’d probably be okay with Hampton, MN that is just a few miles south. There are examples like this all over the Twin Cities and a good realtor in your area can help you identify some of them. No stone left unturned!
Help Out Someone In Trouble – This less popular option to make housing more affordable can pay dividends if you are willing to spend the time and be told no many times. If you don’t want to do the legwork yourself, a good realtor will take on the project. They may ask for you to partner with them to cover the cost of postage and such but this can be a way to create your own listing to buy. Foreclosures are listed by law for a minimum of 6 weeks prior to the sheriff sale. If you can identify one that owes less than market value, make them an offer to pay off what they owe to the bank which could have them getting saved by the bell and you buying a home for lower than market value for a property that wasn’t even listed. This one can be tricky so having someone who knows what they are doing by your side is paramount.
Auction Homes/First Look Initiative – There are auction websites that often times do not list their properties on the MLS but they are available for purchase. Some of them can be good deals but you have to find out the rules for purchase and what it takes to see the home before purchase. Another interesting idea is the First Look Initiative issued by Fannie Mae & Freddie Mac. This program lists homes for sale at a discounted price only to be purchased by owner occupants for the first 30 days of offering. Some of them are on the MLS and others are not. The ones that aren’t can be a ticket to a home below market value but again, only for owner occupants for the first 30 days.