If you’ve gone through your budget process and feel that you can’t afford what you want, there are some other things you can do to make getting a home more affordable.
Purchase A Fixer-Upper: Any time a home has obvious problems, the selling price becomes much more negotiable. If those problems are superficial things, like ugly wallpaper, worn carpeting, or hideous color schemes, you can probably get the property at an attractive price, then fix it up to suit your own tastes fairly easily. If the problems are the kind that require light construction work, like replacing drywall, the fixes become a little more challenging. If you have absolutely no free time or if you’re simply not handy when it comes to home repairs, the fixer-upper route can be more costly than it’s worth.
Look Into Multifamily Homes: Another way to make a home more affordable is by getting other people to help you pay for it. By purchasing a duplex or other multifamily home, your tenants will pay for a significant part of your house payments and could even generate a profit for you. But before you go this route, contact me for a free copy of my guide on buying an investment property. It’ll give you a good overview of the responsibilities involved with being a landlord.
Consider Condos: Condominiums are an especially attractive option if you have a very active schedule and don’t particularly like doing home maintenance. Initial purchase prices are generally less than single-family homes, but be sure to factor the monthly association fee into your budget. It could be significant, depending on the level of maintenance and amenities your association provides.
Lease To Own: This approach allows you to get into the home you want right away without putting any money down until later. By agreeing to a monthly lease rate that puts a portion of the payment toward the purchase, you can have a good deal of equity in the home by the time you close on it. You may even avoid making a down payment entirely. Meanwhile, the sellers or landlords have a guaranteed cash flow, and a guaranteed sale without having to pay a real estate agent’s fee. There are some risks with this approach, as well. For instance, you need to structure your agreement so your landlord can’t simply change gears and not sell you the house after you’ve invested months of payments in the deal. Consult your legal representative and my team when you’re writing the lease and purchase agreements. You want to be sure that the agreement you put together will work with your future financing. Mortgage underwriting guidelines say that only a portion of the rental payment over and above the customary amount can be applied toward the down payment.
Buy A Foreclosed Property: While it’s true that you can find occasional bargains among foreclosed properties, there are serious pitfalls you need to avoid. Foreclosed properties are often sold “as is” (meaning you can’t require the seller to make any fixes), and the purchase time line may not give you enough room to do a careful inspection. If you decide to go this route, just make sure you get an opportunity to check out the property thoroughly. Ask your real estate agent to help you identify foreclosure listings in your area. You can also search the Web sites for Fannie Mae, Freddie Mac, HUD, and the Department of Veterans Affairs.
Previous posts in this “Down Payment Options” series: