How To Buy A House on a Budget

[May 16, 2008.]

Buying a house confers significant financial and psychological advantages upon your life. It offers the mental security of knowing you and your family will always have somewhere to live; moreover, real estate is a good financial investment, likely to yield high a return. However, real estate markets can be prohibitively expensive. What are your options if you need a nice, big house, but just don't have the cash or capital?

First, if you have lots of time and are willing to invest the energy, you should look at cheaper homes that you can afford. Eventually, you will be able to move on to that expensive new home of your dreams.

How? Lots of homes on the market today need repairs. Even today, it's possible to buy a run-down house in some parts of the country for less than $100,000. Consider finding tenants to live in the house, and then using the money obtained from the tenants to pay for repairs. Then, resell the house for considerably more than you bought it for, and invest that money in a bigger, more expensive house.

You can keep doing this, until finally you can afford to buy the house that you would want to keep.
Another option for homebuyers on a budget is to consider the prospect of sharing ownership of a home with other buyers. There are certain legal arrangements known as "tenancy in common."  Becoming a tenant-in-common would allow you to buy only part of a building or house in conjunction with one or more other buyer. This is useful in high-priced urban areas, where buying an apartment alone can be prohibitive for the up-and-coming urban professional.

When a one-bedroom apartment in Manhattan sells for upwards of $200,000, purchasing a single bedroom and kitchen in a larger building as part of a tenancy-in-common arrangement may save a considerable amount of money. The downside is that these arrangements are full of legal complications. Yet, if you're willing to do your homework, big savings could be your reward.

If you're into socialism, consider co-housing, a phenomenon that first appeared in Europe. With co-housing, homebuyers save money by buying homes on one jointly-owned piece of property. Each buyer will own his or her individual home, but the property that the homes stand on will be owned cooperatively. In this way, buyers can save as much as 17% over buying the same kind of home without the joint-ownership arrangement for the land that the home stands on.

The only problem with this arrangement is you must be prepared to agree on everything you plan to do to your jointly-owned property with all of its other co-owners. This means many interminable-seeming meetings and long discussions with your neighbors. On the other hand, if you miss having a "sense of community" with your neighbors, these long meetings could be a good thing.

Finally, consider your family. If they already own a house and you can stand them enough to live with them, enlist their help. You will be amazed at how much money you save by staying with your parents for a while. With no mortgages or rent to worry about, you'll be able to save up the money for an initial down payment on that dream home in no time--try a year.