Buying a home has always been part of the American dream, but it seems more out of reach than ever for many prospective homeowners. The median home price increased 121% between 1960 and 2017, while wages only increased 29% in that same time.
That means that conventional financing, where you save 20% as a down payment, may not work for you. With the average home costing nearly $300,000 and the median household income in the U.S. at $65,712, you have to be creative.
What are some alternatives to traditional home financing that you can take advantage of? Let’s take a look.
Live with your parents to save money
We know: no one wants to live with their parents, but it’s a reality for a significant portion of the population. In the age 18-34 demographic, 52% of Americans live with their parents.
Instead of seeing this as a significant blow to your dreams of independence and freedom, take advantage of it as a launching pad. Work and save as much as you can so that you can afford a mortgage.
Don’t worry about getting to 20%, either — many first-time homebuyers programs require a much lower down payment. You can even shop for mortgages online and compare rates to get the best options.
Fewer young people are buying homes today due to high costs and tight lending standards. Living at home for a short period of time may give you the jumpstart you need.
Take advantage of retirement funds
If you’ve been working for quite some time but haven’t managed to save up for a mortgage, you might consider pulling out some of your retirement savings. If you have a self-directed IRA, you can use that money as part of your purchase.
You can also borrow or withdraw money from other accounts, including IRAs and a 401(k). Just be sure you’re aware of any penalties you’ll incur and the trade-off for your future retirement planning.
Many times a home is a good asset that gains value, so it’s not absurd to use part of your retirement savings, especially if you have struggled to save otherwise.
Use home seller financing
If the person selling the home doesn’t need immediate cash, they might agree to take payments over time for the property. This gives the seller a source of income and allows you to buy without so much hassle.
You can often arrange a lower down payment or other useful payment terms. However, the arrangement has to be worthwhile to the homeowner as well, so you might end up with a higher sales price or higher interest rates. When you use home seller financing, the seller acts as the mortgage holder.
Make sure you protect both yourself and the seller with a strong contract. You want to ensure the seller won’t transfer the property to someone else, and the seller wants to make sure that you have to pay them on time each month. You’ll probably need to pay for a lawyer to draw up a fair and enforceable contract.
Work with habitat for humanity
If you need housing and are willing to put in some work, you can apply to be a Habitat for Humanity homeowner. You partner with the program throughout the homebuilding process, and after the home is complete you pay an affordable mortgage.
The mortgage payments go back to Habitat for Humanity, who then uses the money to build additional homes for those who need them.
Anyone can apply to be a Habitat homeowner. Don’t be shy — look into this important way to get into homeownership!
You can own a home
There are more options for buying a home than you may have realized. You don’t always have to qualify for a conventional mortgage and provide a 20% down payment. The list of options in this article can help you improve your credit and get started in an entirely different way.
Once you own a home, if you care for it and keep up with the mortgage, you will build equity. This will help you springboard into your next property much more easily.
Good luck on your homeownership journey!