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Can’t Afford to Buy a House? What to Do if You’re Priced Out of a Home

You know all the reasons to buy a home. Homeownership helps you build wealth, get a tax break, and feel more involved in your community. But you’re looking at rising housing prices and wondering how you’ll ever afford to get on the property ladder.

Homeownership remains the American dream, even as more and more would-be first-time home buyers feel like they’ll never have the luxury. It might involve a priority shift or managing your expectations, but you have options if you want to buy a home and are struggling to find one within your budget.

Can’t Afford to Buy a House? What to Do if You’re Priced Out of Buying a Home

If the housing market in your area is just too hot, you can go in one of two directions. You can strategize and get creative to make the home you want affordable today. Alternatively, you make a plan to prep your budget and finances for buying a home later.

Tips to Get a House Now

Rents are climbing, and so are interest rates. You’ve got an excellent credit score and a bit of a down payment saved up. You want to buy before home prices increase even more. Broadening your search and finding ways to earn income from your property can help you afford a home today, even in a pricey real estate market.

1. Rethink Your Must-Haves

If you’re going into your home search with a lengthy list of must-haves, start by cutting that list down considerably. Nix features that will have the most significant impact on a home’s price while having minimal impact on your quality of life. Usually, these are the cosmetic details, like granite countertops or certain lighting fixtures.

Also consider the cost of adding certain features later. Installing a second bathroom is a major renovation project, but changing the kitchen countertops or upgrading the flooring is less involved.

Another way to approach your list is to sort features by priority. Write your biggest priority, such as a certain number of bedrooms or bathrooms, on the list. Then, list the rest of your priorities in order of importance. 

2. Look in Different Areas

If you’re not finding homes in your price range in your preferred neighborhood, start looking in other locations. You might not have to look too far outside your target area to find a home you can afford, as prices can vary considerably within the same city or even within the same neighborhood.

A real estate agent who knows your area well can give you pointers on the places to look with lower prices.

Expanding the geographical area of your search might not work in all situations. If it makes your commute too long or moves you away from your preferred school district, it might not be worth it, even if the home prices are much lower.

3. Consider House Hacking

House hacking means finding a way to turn your home into a money-maker. It’s not for everyone, but if you get along well with other people and don’t mind giving up some privacy, it can help you get a foot on the property ladder.

An easy way to house hack is to buy a home with more bedrooms than you need, then rent out those rooms. Another option is to buy a multifamily home and rent out one or more units while living in another. You can also buy a home with a finished basement and rent that out. 

You can hack your home in ways that don’t involve people living with you too. If you buy a property with a garage, you can rent it as storage or let a local band or artist rent it by the hour as a rehearsal or workshop space. 

The same goes for any parking that comes with your home. If you have an extra spot, you can rent or sell it.

House hacking isn’t risk-free, though. You might have trouble finding roommates or renters, which can make it difficult to afford your mortgage. There’s also the risk of renting to nightmare roommates or tenants who damage your home.

Also, house hacking won’t help you qualify for a mortgage on a pricier home. You need to have the down payment, income, and credit history to demonstrate you can make the monthly mortgage payments on your own to qualify. 

If you’re going to try house hacking, it’s best to combine it with something else, like getting down payment assistance.

4. Look Into Homebuyer Assistance Programs

Every state in the U.S. has assistance programs designed to help first-time buyers afford a home purchase. The exact details of the programs vary, but generally, they provide a grant or low-interest loan to help you afford a down payment. Some offer help with closing costs too.

In some states, the loans are forgivable, meaning you don’t have to pay them back in full if you fulfill the program’s requirements. 

Typically, homebuyer assistance programs are limited to people buying their first properties. Most programs have income limits based on the size of your family. They might also have price limits, and you have to live in the property you buy in most cases.

A real estate agent or your mortgage lender can point you toward homebuyer assistance programs in your area. They’ll also let you know if you qualify for a program. 

Also, community banks and credit unions often have home buying assistance programs for members. It’s worth it to find out if yours does and whether you’re eligible.

5. Look Into Alternative Loans

Most people take out a mortgage to buy a home. But some, around 1 in 5, also use additional sources of financing to make buying a home affordable. If you don’t have a big down payment or can’t get a traditional home loan, alternative financing might be an option.

Alternative loan options include getting seller financing, meaning the person selling the property acts as your mortgage lender. Another option is to have a relative or friend lend you money for the down payment.

Alternative financing options are considerably riskier than mortgages. If you borrow from a loved one, then have trouble paying it back, you can strain your relationship. 

Seller-financed mortgages simply don’t offer the same protections as conventional mortgage loans. Most states don’t have laws regulating them, so you’d be at the mercy of the person selling the property. If they’re trustworthy, that’s great, but if they’re not, you could end up spending thousands of dollars and without a home to show for it.

It might be best to consider alternative financing options as a last resort, when you need to buy a home ASAP and can’t get a mortgage.

It’s also worth noting that if you can’t get a conventional loan, several government-backed options are available, such as a U.S. Department of Agriculture or Federal Housing Administration loan (commonly called USDA and FHA loans, respectively). Both have looser credit requirements than conventional mortgages and lower down payment requirements. 

If you’re having trouble saving up 20% or getting approved for a conventional loan, look into either FHA or USDA loan programs first before considering unregulated options. 

6. Consider a Fixer-Upper

If a turn-key, move-in-ready dream home is simply out of reach, but you’re handy with a drill and a hammer, a fixer-upper might be your ticket to homeownership. But proceed with caution, as not all fixer-uppers are created equal.

Fixer-uppers typically cost less than move-in-ready properties in the same area. Some need just a few minor upgrades, meaning you can live in the house while doing the work. Others might need extensive renovations, requiring you to keep renting or find alternative living arrangements while the work is done.

You’ll also most likely need a different type of mortgage if you buy a fixer-upper unless you can afford to pay for the repairs out of pocket.

Even if you plan to do most of the work yourself, it’s smart to bring in a contractor and have them inspect the property before you buy it. They can give you a realistic estimate of the cost of renovations and a timeline. 

7. Consider Rent-to-Own

Rent-to-own is another potentially risky move that could help you buy a home. When you sign a rent-to-own agreement, you agree to pay the property owner monthly rent plus an additional credit, which will go toward the down payment on the home. The lease agreement is usually for anywhere from one to five years. 

To be clear, once the agreement is up, you don’t automatically own the property. Instead, you’re one step closer to homeownership, as you’ll have saved up enough for the down payment. You then need to go through the process of qualifying for a mortgage if necessary and actually buying the home.

The big advantage of rent-to-own programs is that they let you lock in the sale price. If the market improves, you don’t have to worry about the price of the house going up. You also get to live in the home right away, making it a sort of try-before-you-buy arrangement. 

Of course, if you have to break your lease or end up not buying the house, you’re out the money you put toward the down payment. Some property owners also expect renters to take care of repairs and maintenance, even before they own the house. 

8. Consider a Townhouse or Condo

If the cost of a single-family home in your area is out of reach, a condo or townhouse might be a better option, especially if you don’t need a lot of space. Condos or townhomes tend to cost less than single-family homes, but not always. A condo on the Upper East Side of New York is more expensive than a single-family house in the Midwest.

Another thing to consider if you want to go the condo or townhome route is the homeowners’ association fees. In some condo associations, the HOA fees can be as much as a monthly mortgage payment, if not more. The HOA might also have a great deal of control over what you can and can’t do to your home. 

But a smaller property might be worth it if the price is right and you don’t mind living in less square footage.

9. Consider a Co-Signer

If you don’t have the credit score to land a conventional home loan on your own and don’t qualify for a USDA or FHA loan either, finding a co-signer might be the way to go.

A co-signer doesn’t live in the home with you. They don’t even have to make payments for you. They’re essentially stepping up and saying they’ll assume responsibility for the loan if you fall behind. 

Your co-signer shares the mortgage with you. If you stop paying it, their credit takes a hit. The lender has the right to come after them and demand payment if you can’t pay. 

Depending on your circumstances, you might have a parent or another relative willing to take on the risk of co-signing with you. If you want to remove the co-signer later, you need to refinance the mortgage.

How to Improve Your Chances in the Future

Maybe buying a home right now isn’t in the cards for you. If you’re going to wait to buy, it pays to take action and improve your personal finances. When the time comes to buy a home, you’ll be ready to go.

10. Save Up a Larger Down Payment

You can buy a house with a small down payment, but doing so makes your monthly mortgage payment higher and means you have to pay private mortgage insurance. If you’re not in a rush to buy a home, focus on putting money in a savings account for a down payment. 

How much you save depends on your budget, the price of homes in your area, and your timeline. You can aim for 20%, which will avoid mortgage insurance, but saving 10% might be more realistic if homes are particularly pricey.  

11. Improve Your Credit Score

A low credit score makes it challenging to get a good interest rate on a mortgage or can cause a lender to deny your application. If it’s less than 700, try bringing up your credit score before you start house hunting.

The best way to raise your credit score is to get current on your debt payments. If you’ve missed payments or paid late, focus on bringing them up to date. Then, commit to paying on time moving forward. 

If you have credit cards, aim to keep your balances low compared to your credit limit. Ideally, your balances will be less than 10% of your limit. So if you have a $10,000 limit, don’t charge more than $1,000. 

The lower your credit use is the better. If you can pay your credit card balance in full before the end of the statement period monthly, your utilization ratio will look like zero, which will make your credit score go up. Paying your balances in full each month also helps you avoid more debt.

12. Pay Down Your Debt

Speaking of debt, lenders look at your debt-to-income ratio when reviewing your mortgage application. The higher your ratio, the riskier you look to a lender. Pay off as much debt as possible before you jump into the housing market and start shopping for a mortgage to increase your odds of getting approved.

For many would-be homeowners, deciding to pay down debt or save for a down payment is the ultimate chicken-or-the-egg conundrum. Whether you should focus on debt repayment or down payment depends on the cost of your debt and how much it’s affecting your ability to live your life and pay for your current bills.

13. Boost Your Income

If you’re struggling to make ends meet, pay your rent, pay down debt, and save for the future or you don’t have anything set aside in an emergency fund or down payment, find ways to earn more money.

Depending on your schedule and other commitments, you have many options for increasing your income. You can try taking on a side hustle if you have free time. You can also try asking your current employer for a raise.

In some cases, leaving for greener pastures is the way to go. That can mean finding a better-paying job in your current field or starting a new career in a higher-paying industry.

Final Word

It’s disheartening to look at home prices and see them inch higher and higher pretty much daily. But don’t panic if you’re feeling a market squeeze. If you want to buy a house right away, you have options for making it more affordable. 

Waiting to buy can also be a good choice, as it gives you a chance to improve your financial situation and build up a sizable nest egg for a down payment and emergencies. 

The dream of homeownership is still achievable for many people, you just need to get creative to reach it.

Amy Freeman is a freelance writer living in Philadelphia, PA. Her interest in personal finance and budgeting began when she was earning an MFA in theater, living in one of the most expensive cities in the country (Brooklyn, NY) on a student's budget. You can read more of her work on her website, Amy E. Freeman.