What To Do If You Feel Like You'll Never Afford a House

“I’ll never be able to buy a house.” “Homeownership is impossible for Gen Z.”

These types of comments, on Reddit and other discussion boards, show how thousands of Americans feel about homeownership — that they’re forever stuck on the outside looking in.

Finding a way to get into a house, however, can still create huge and long-lasting benefits.

How Can I Buy A Home?

Spend less, save more? Maybe you’ve heard this advice for people who want to save a down payment for a home. This is still good advice, but it overlooks a problem: While you’re saving, home prices are probably increasing. The $30,000 you can save over the next two years won’t pull the same weight in two years as it would today.

In other words, you’re chasing a moving target.

Unless you can afford to break this cycle by saving a lot more than most Americans, you’ll need a different way to get into a home sooner. If you can get your foot in the door of homeownership, you can start benefiting from rising home prices instead of chasing after them.

Here are some ways to skip ahead:

Buy A Fixer-Upper

Houses that need repairs cost less money, so home shoppers can buy a home faster by looking at fixer-uppers.

This strategy won’t work for everyone. It’ll depend on your ability to fix up the place. Most people can handle the cosmetic problems, like peeling paint and gaudy wallpaper, that pull down a home’s value. But replacing entire plumbing or wiring systems will require some skill.

Generally, the more there is to fix, the less you’ll pay and the more value you can add by restoring the home.

Don’t get in over your head. Be honest with yourself about your ability, and your motivation, to get stuff done. And keep in mind not every mortgage loan will finance a fixer-upper. You may need a special rehab loan depending on the home’s condition.

Buying A Smaller Home

Smaller homes cost less on average. If you need three bedrooms but could squeeze into two for a while, skimping on space can help you break into homeownership a lot sooner.

Then, after you’ve paid off enough of the mortgage, you can sell the home and use the profit to buy a larger home. Or you could leverage your home equity to pay for an addition, creating that third — and maybe a fourth? – bedroom.

Starting small lets you start investing in yourself and your future sooner — rather than trying to save money while also paying rent.

Buying A Home In A Cheaper Market

The same home can vary in price by tens — or sometimes hundreds — of thousands of dollars depending on its location. If you can’t afford a home in your current neighborhood, check out some other areas. You might be surprised how much home you can afford elsewhere.

Could you live in a not-so-trendy suburb for a while? What about living in a ZIP code with a lower median income? If you work remotely, could you move to a different region, or even a different state?

Just like buying a smaller home, buying a home in a cheaper market creates the foot-in-the-door effect. By paying down the mortgage, you’ll be building your own asset — even if it’s not in the ideal location — rather than continuing to build your landlord’s wealth.

Taking In A Boarder

So you can’t move to a different area or buy a small home, and you don’t have time for a fixer-upper. How about renting out a bedroom to increase your monthly income?

You’d need to buy a home that fits this purpose — one with a bedroom and private bath on its own side of the house, for example. Better yet, can you find a home with a garage apartment that’s designed specifically for a boarder?

Some middle income borrowers who rent out a room can use the rental income to help qualify for the mortgage. Freddie Mac’s Home Possible mortgage, for example, can do this. Others will need to qualify for a mortgage and then use rental income to make the payments more affordable.

Buying A Duplex

Federal loan programs like FHA and VA let borrowers buy duplexes as long as they live in one of the units. The borrower can rent out the other half of the structure, earning income that makes the mortgage payment easier to make each month.

What’s more, these loan programs can approve complexes with up to four units — again, as long as the borrower agrees to live in one of the units. Conventional loans will finance these types of multi-unit properties, too.

This is a great way to become a homeowner and a landlord with one transaction. Your tenants will be helping you make the monthly mortgage payment.

Buying With No Money Down

The USDA Guaranteed Loan program lets borrowers in rural areas skip the down payment completely. To participate, a borrower must earn 115 percent or less of the area’s median income. If the area’s median income is $100,000, a USDA borrower can earn up to $115,000.

Borrowers must also buy within areas the USDA defines as rural. Naturally, this excludes most cities and large suburbs, but it includes homes within commuting distance of many cities.

The U.S. Department of Veterans Affairs (VA) allows no-money-down loans in any location. These loans go only to military veterans, active duty service members, and surviving spouses of veterans who were killed in action.

Finding A Low Down Payment Loan

The 20 percent down rule for home buying is outdated. In fact, it’s possible to buy with as little as zero down with a VA or USDA loan, 3 percent down with a conventional loan, and 3.5% down with FHA. On a $400,000 home, 3 percent down equals $12,000, a much more manageable amount than the $80,000 required to put 20 percent down.

Not everybody will qualify for a 3 percent down conventional loan; more people can buy with 5 to 10 percent down. However, more buyers can qualify for the more lenient FHA loan which requires only 3.5 percent down for borrowers with credit scores of 580 or higher.

There is a catch when putting less than 20 percent down: You’ll buy mortgage insurance to protect the lender in case you default. Depending on the home’s price, this could add a few hundred dollars to the mortgage payment each month at first. (This premium will decrease as the loan balance goes down.)

Borrowers can also cancel their conventional loan’s private mortgage insurance once they’ve paid off 20 percent of the home’s value. Although an FHA loan’s government mortgage insurance typically lasts for the life of the loan, borrowers could refinance later to eliminate it.

Compared to spending years saving up a 20 percent down payment while home prices increase, paying for mortgage insurance for a while is usually a good investment.

Using A Piggyback Loan

Borrowers with excellent credit who are struggling to come up with a large down payment could also get creative with a piggyback loan.

A piggyback loan is really two loans:

• A primary mortgage that covers 80 percent of the new home’s appraised value

• A second mortgage that covers 10 percent of the home’s appraised value

The buyer comes up with the remaining 10 percent. The benefit? Piggybacking creates the appearance of a 20 percent down payment even though the buyer parts with only 10 percent — $40,000 instead of $80,000 for a $400,000 home..

With 20 percent down, the borrower avoids private mortgage insurance (PMI) and can get a lower interest rate on the primary mortgage, potentially saving hundreds of dollars each month.

Seeking Down Payment Assistance

Lower- and middle-income borrowers should check their area’s down payment assistance programs. Non-profit agencies and state or local governments operate most DPA programs. These programs can be game changers for borrowers who are struggling to come up with enough cash on their own.

Some DPA programs offer grants which never have to be repaid. Some offer down payment assistance in the form of a forgivable loan; other DPA loans must be repaid but tend to come with favorable terms.

Asking For Help With The Down Payment

If you don’t qualify for a down payment assistance grant or loan but still need help, you could ask friends or family members to contribute. Some newlyweds ask for down payment cash in lieu of wedding presents. Others ask their parents or grandparents for an early inheritance.

You won’t be the first person to use gifts to fund a down payment. In fact, mortgage lenders have a specific process for this.

Why Is It So Hard To Afford A House?

Let’s skip the rosy nostalgia for a time when anyone with a job could buy a house and start building generational wealth. Such a time may have existed, but it won’t help to reminisce.

Buying a home in the 21st century is harder. Over the past four decades, wages for middle class Americans have stagnated. Consequently, the amount of money Americans can afford to save for a home has fallen.

And now home prices have risen faster than usual over the past few years. Then, interest rates, though historically low in 2021, rose steadily to generational highs in 2023 and are just now starting to recede.

Then there’s inflation. It seems to be calming now, but only after taking a big bite out of the savings accounts of many Americans while also increasing rent, further eroding our ability to save.

Should I Give Up On Buying A Home And Pay Rent Forever?

It’s tougher to buy now, but the benefits of homeownership remain significant. In fact, the benefits of homeownership may be more important than ever — because of the difficulty buying.

Unlike rent payments, which enrich your landlord, making mortgage payments on your own home helps build your own wealth. Eventually, you’ll have the home paid off. You’ll be immune from rising rents. Or, you could rent out the home and earn money from those rising rents.

Home Equity Builds Financial Stability

Even before that wonderful day when the house is all yours, you can still benefit from homeownership. As your mortgage balance gradually falls, you’ll be building home equity — an asset you can use to build a more financially stable life.

For example, if you were facing a huge car repair or needed help paying tuition, you could borrow the money at much-lower interest rates by using home equity as collateral. That way you won’t depend so much on savings, wages, or worse, high interest credit card debt.

You can also use a home equity loan more strategically — as a down payment on a rental home, for example, growing your real estate portfolio.

So, yes, there’s still plenty of reasons to keep working toward homeownership.

What About Closing Costs?

Closing costs add another hurdle for home buyers. These costs cover the professional services needed to close a mortgage loan, things like legal fees, lender’s fees, and appraisal fees. Closing costs usually add up to 2 to 5 percent of a home’s price — that’s $8,000 to $20,000 on a $400,000 home.

Sometimes, the home’s seller will agree to help pay closing costs, but it’s up to the buyer (and the buyer’s agent) to negotiate this into the purchase contract. In a seller’s market, where high demand for housing makes homes easier to sell, sellers will be less likely to help pay these costs. Instead, they’ll wait for a buyer who can pay all the costs without the seller’s help.

The down payment assistance programs mentioned above earlier can also help some buyers pay closing costs. It may be possible to finance some, but not all, closing costs into your new mortgage. Be sure to ask your loan officer about this when you apply for the loan.

Reducing The Hidden Costs Of Home Buying

The home’s price, its down payment, the closing costs — these numbers are easy to measure. But the home’s monthly payment depends a lot on the buyer’s mortgage rate and loan term, too.

For example, on a $400,000 loan spread across a 30-year term, a buyer would pay about $2,100 a month, not including taxes, HOA fees, and homeowners insurance, if the interest rate was locked in at 6.5 percent.

The same loan at 6 percent would cost only $1,900 a month. That $200 in monthly savings is enough to help some buyers qualify for the home. This is why shopping around for the lowest mortgage rate matters so much.