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10 Ways To Save 10% To 99% On A New House

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The median home price in the U.S. is $247,800. In two thirds of the country prices are now at all time highs, and mortgage rates are rising. If you’re planning to buy a house, those higher prices and interest rates mean you’ll pay higher monthly costs.

You might also worry about a drop in the value of your new home, especially when buying at record-high prices. In 2009, CNN reported that some cities had seen declines of 37% to 50% in just one year. Who wants to be trapped by an upside down mortgage?

So how do you lower your monthly costs and get some downside protection? Here’s one way: Buy an affordable house for less than market value.

My posts on cheap housing options and reasons to buy a mobile home covered some cheaper alternatives to traditional houses. Something as simple as buying a smaller home or moving to a less-expensive town can save you a ton of money.

But even if you find a more affordable home, how do you get it for less than what it’s worth? In other words, how do you have a decent chunk of equity from the very start?  Try using one of the following ten ways to save 10% to 99% on your home purchase.

1. Save 50% With the Good Neighbor Next Door Program

The Good Neighbor Next Door program, run by HUD (Department of Housing and Urban Development), tries to revitalize areas by bringing in “good neighbors.” To be a good neighbor you have to be one of the following:

  • A Law Enforcement Officer
  • A Pre-Kindergarten Through 12th Grade Teacher
  • A Firefighter
  • An Emergency Medical Technician

If you qualify, “HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home.” They do this in the form of a 2nd mortgage for half of the purchase price. You make no payments on this 2nd mortgage as long as you stay in the house for at least three years, at which time the “silent second” is forgiven.

These homes are only found in designated “revitalization areas,” which change, so check with HUD. Inventory comes and goes, but when houses are available you might even consider moving and getting a new job to get a 50% discount on your home purchase.

2. Get a $100 Home in an Asset Control Area

If you’re in the four professions that qualify you for the Good Neighbor Next Door Program, you can get an ACA home for $100. Those are houses in what the FHA calls “asset control areas,” which are in those revitalization areas.

HUD works with, “state, county and local units of government, as well as approved nonprofit organizations to make foreclosed FHA homes available first to ACA participants. If you qualify, HUD says, “ACA properties with an appraised value of $25,000 or less may be purchased for $100.”

Like many HUD programs, funding, and availability of ACA homes, seems to come and go. And houses worth $25,000 or less are likely to be in depressed markets like Detroit, Michigan, or Birmingham, Alabama. But, if available, a $100 home might make you want to help “revitalize” a city, right?

3. Buy a Fixer Upper

Buying a house that needs work is a way for just about anyone to save money. Your discount comes from “sweat equity,” which means you’ll spend less money but pay the difference in the form of your labor (even if you hire help for the repairs it will involve a lot of mental labor).

Having bought a few fixer uppers, and having worked with several house flippers, I can tell you that repairs and renovations will almost always cost more than you think. So leave room for surprises when you do your calculations.

Your goal is to have real equity when you’re done. The last thing you want is to put $15,000 into a $70,000 purchase and end up with a home valued at $85,000 — you would have been working for free! In fact, I wouldn’t want the headaches involved if I wasn’t going to be at least $10,000 ahead for a couple month’s work, and, to be safe, I would aim for at least $15,000.

For example, if you estimate a house will be worth about $120,000 after $10,000 in repairs and renovations, don’t invest more than $95,000 to start, because $95,000 + $10,000 = $105,000, ultimately leaving you with $15,000 in equity — if your estimates of cost and value are correct.

4. Use Individual Development Accounts

If you have a job, and also have low income and minimal assets, and/or receive TANF (Temporary Assistance for Needy Families)  benefits, you may qualify for an IDA (individual development account). These bank accounts can typically be used for one of three purposes: education, a business, or to buy your first home.

The Social Security Administration explains, “You contribute money from your earnings from work. With an IDA, your contributions are matched with money from your State’s TANF (Temporary Assistance for Needy Families) program or from special funds called “demonstration project” money.”  Not every state participates, but if yours does, the “match” is up to 4-to-1, so this can really help.

For example, the Newtown program in Tempe, Arizona, which is specifically meant to help people buy homes, has a 3-to-1 match for their IDA accounts. Save the $5,000 limit and they’ll match it with $15,000, so you would have $20,000 for a down payment and closing costs. As a couple you can qualify if you make up to $42,000.

Note: “New homebuyer” and “first-time homebuyer” are often defined as someone who hasn’t owned a home in the last three or five years, so even if you have previously owned a home you might qualify for one of these programs.

There are other requirements, which may vary by program. In the example above you have to live in Maricopa county, take an eight-hour homebuyer education class (free), and stay in the home for five years. Google “IDA account” and the name of your state to see what programs are available near you, and what requirements they have.

5. Get Free Down Payment Money From the Tribe

If you are an enrolled member of a Native American tribe, you may be able to get a down payment grant and other assistance from your tribe.

For example, the Grand Traverse Band of Ottawa and Chippewa Indians, in Michigan, gives members $5,000 toward a down payment on a house, or $10,000 for low-income members. They also sometimes pay for a septic tank and well if it’s a new home, which might save you another $5,000 (or more).

Many tribes have these programs, but they vary quite a bit. For example, the Chickasaw Nation offers only $3,000 toward a down payment, while the Cherokee Nation gives its citizens up to $20,000 in assistance. Check with your tribe to see what they offer.

6. Get a Habitat for Humanity House

To have a Habitat for Humanity house, you have to have steady income, and make enough but not too much (income guidelines vary by locale, but a family can make up to $66,000 in some locations). You also need to help build your home (or others), take homeowner classes, and make a small down payment.

Those are the most common requirements; others vary depending on what part of the country you’re in. You can find your local Habitat affiliate to see if you qualify.

The savings can be huge, and they come in two forms. First, you buy at cost, which with all the donated labor can easily be $20,000 or $30,000 less than what the value of the house will be once its finished.

Second, you pay no interest on the mortgage loan. The Lafayette, Louisiana Habitat affiliate says their average home cost $90,000, and points out that “Our homeowners are saving an additional $50,000-$70,000 they would otherwise spend on interest charges over the life of the mortgage.”

In other words, you might save as much as $100,000 over the years, between the lower cost and the lack of interest. And you will be there for at least several years — that’s one of the conditions when you get a Habitat Home.

7. Build a Home

As others have pointed out, Investopedia says that building a house is often more expensive than buying an existing home. But they’re referring to hiring a builder to build a traditional home. There are other ways.

For example, you may have heard of the tiny house movement. If you’re handy or willing to learn the skills as you go, you can build a tiny home by yourself. A Fast Company article features homes that were built for as little as $14,000. If you do the work yourself, once you’re done, you should have something worth much more than you invested.

If you go the truly frugal route you can do even better. My friend built a livable “shed” on a small piece of land he bought, and had power run to it. The home, land, and power, all totaled less than $10,000. He eventually ran into zoning issues, which can be avoided by using the next strategy…

8. Put an RV on Land

If there is cheap land near where you want to live, you can buy a small parcel and park an RV on it. Livable, used RVs start at under $5,000 (check Craigslist).Generally, “temporarily” camping on your land will generate less trouble with authorities than building a shack on it.

This is a cheap way to start.You can add a storage shed, septic system and other amenities in the future. And if you do it right, and you’re in an area where there are cabins, an RV on land, once all set up, should be worth substantially more than what you invest.

9. Win a House

This method is possible (but not likely) for just about anyone. Even if the odds are not great, the investment is usually minimal.

I’m referring to homes you get as a prize. I just searched “win a home” and arrived at a page with two homes that are being given away in sweepstakes. One had no entry fee, and the other had a $150 fee. St Jude Children’s Hospital was also running “home giveaway” raffle to raise money.

Win-a-home-essay-contests are common too. I just Googled “win a house essay” then clicked “tools” and “past month” to narrow results to current contests. I found several possibilities, including an NBC news story on how you can write a 200-word essay to win a home in Maine.

10. Keep Making Low Offers

One of the simplest ways to buy a home for a nice discount to offer at least 10% less than what it should sell for. Read up on how to make a lowball offer, and then go for it. If it doesn’t work, move on to the next home you like and try again.

You don’t usually know the seller’s motivations, but some sellers are willing to take less to make a sale now. Others have been burnt by financing contingencies, and will respond to a cash offer, even a low one.

The thing is, you don’t really need to know why the house is being sold or whether any particular owner will say yes to your price. Just keep making low offers until someone sells you a home at a discount from market value.

If you can add to this list of ways to buy a home for less than it’s worth, please share your ideas or experiences below … and keep on frugaling!

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