Four affordable ways to buy a home

Do you want to buy a home but feel like you just can't afford it? Well, don't give up on your aspirations for owning a home just yet. There may be ways you could get your piece of the American Dream - for a lot less than you ever thought possible.

Yes, just as you can get a car or a refrigerator below market value, there are ways to get a home at a bargain price as well.

Of course, don't expect to just stroll down to the nearest Sears outlet for a great deal. Getting a home for below market value will take some work. Fortunately, we've started the process for you. So check out these four affordable paths to homeownership.

Buy a Fixer-Upper and "Flip" It

Flipping a home refers to buying a fixer-upper, fixing it up, then selling it for a nice profit. In this way, you build equity and come out the other side of the "flip" with a good-sized down payment for the home you really want.

This was done to great effect by many when the real estate boom was on, says Marge Peck, an associate broker with Discover Arizona Real Estate in Mesa, Arizona.

"Four years ago anybody could've flipped a house and rented it out, then enjoyed having a cash cow, because we were at the bottom of the market. Back then, you didn't have to do a lot of repairs or updates by yourself because most homes went for a lot less money. Hiring someone to fix it up wasn't as big a deal," she says.

But times have changed and while this "fixer-upper" strategy can pay off, it's more difficult now, says Judy McNary, a certified financial planner in Colorado.

"For many first-time homebuyers, this can be a great way to go. The key is these buyers should personally be willing and able to do many of the repairs themselves, otherwise those potential profits go out the new, double-pane windows," she says.

Additionally, buyers need to create solid budgets to account for both the time and money needed, then double that figure, says McNary. That's because fixing a fixer-upper is notorious for going over-budget, she explains.

However, if you find a fixer-upper in a nice neighborhood, there is still money to be made, says Robert Leahy, a retirement planning specialist with New York's Leahy Wealth Management.

"From a financial perspective, the best house purchase is an opportunity to buy the worst house in a good neighborhood and fix it up - [or] in other words a house that does not fit in because it's too many steps below its neighbors," he says.

For those willing to put in the work, buying that kind of home can truly reap huge financial appreciation, notes Leahy. Ideally, finding one that is merely aesthetically lacking - having poor "curb appeal" - rather than one that has big structural problems is the way to go, he explains.

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Buy a Fixer-Upper and Live in It

Fixing up a home takes a lot of time, effort, and money - the "sweat equity." And when you put your sweat into something, you may not want to sell it. Choosing to live in the home you fixed up could be an affordable and less complicated way to get your dream home.

The trick is making sure you buy a fixer-upper that has potential, rather than a hopeless nightmare of a home, says Leahy. He says that just as his "worst house in the best neighborhood" strategy works best for financial gain, it could also help you get into the neighborhood where you want to live.

But even the best neighborhood can seem like hell if all you do is shovel out money for major repairs. Here is where the search for financing, or shopping for a mortgage, could help.

Getting a mortgage for a fixer-upper can be a hurdle, because it depends on what and how much work needs to be done, says Oliver Overton-Morgan, a real estate broker with Absolut Realty Inc. in Florida.

"If there are only cosmetic issues such as flooring, paint, and appliances that need repair or updating, then that is not usually an issue the lender will worry about," he says. "However, if the ceilings are hanging down, the kitchen is missing, or there are plumbing or electrical problems, then you would need to obtain special loan financing."

The good news is that there are programs that can help you buy and transform an eyesore into your dream home, he says. One example is the Federal Housing Administration's (FHA) 203(k) loan programs. There are two general types of these loans: one for homes that need only non-structural repairs (new kitchens, appliances, painting, etc.), and another for homes that need structural work.

The important point is that these programs offer mortgages that include up to $35,000 for repairs and a low down payment. There is a limit to the amount you can get for the repairs, but if you choose a property wisely, these are excellent opportunities for buyers of fixer-uppers, says Overton-Morgan.

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Score a Deal With A Bank-Owned Property or Short Sale

When borrowers default on their mortgage, often the lender (the bank) will foreclose on them. This means that the bank now owns the home. Since banks aren't really in the business of owning homes, they will sell the property, many times for less than market value, simply to convert the home to cash. And that's your chance to save.

However, it's not as easy as it was four or so years ago, says Overton-Morgan, because banks often want market value for their properties, because the housing market is stronger now.

"The current seller's market doesn't help because there is a lot of competition between buyers," he says.

So, the key is to know the local market where you want to find a home, he says. You may have to wait a while to find a bank-owned property, but if you're patient and persistent, you could save up to 30 percent on a property that needs repairs, says Bunni Longwell, a realtor with Keller Williams Realty in St. Petersburg, Florida. As with non-bank-owned homes, these properties can be found through your broker or even on your own online.

Another affordable opportunity exists in the short sale. This is a house whose homeowner owes more on his or her mortgage than the actual value of the property, usually because the home's value has decreased since they bought it.

The homeowners of a short sale property can't afford to make the mortgage payments any longer, so they list the house on the market for a price lower than the amount they owe on the mortgage, explains Overton-Morgan. Once an offer is accepted, they negotiate with their bank to pay off the mortgage at a lower price.

But there's one hurdle. "This process usually takes three to six months to negotiate with the bank after an offer is accepted. The bank may accept the purchase price, or they may counteroffer, which means you either accept their offer or cancel the sale," says Overton-Morgan.

But he says if you do succeed, you can score a home for well under market value.

Take Advantage of a Down Payment Assistance Program

Often, it's not the monthly mortgage payment that's the biggest hurdle to buying a home - it's the large down payment. Well, good news: There are programs that could help you with that.

In general, if you fit into one of the following groups, there's a chance you qualify for some form of down payment assistance: First-time homebuyers, repeat homebuyers, veterans, essential community workers, and those with credit challenges, according to Steve Roney, CEO of Prudential Utah Real Estate.

For instance, says Roney, "There are programs to provide down-payment assistance to local school teachers, law enforcement, and firemen to become homeowners in the communities in which they serve. State and local programs provide down payment assistance to allow a homebuyer to borrow all or a portion of their down payment and closing costs."

Even if you think you earn too much per year, you might still want to check with your broker or financial advisor about these programs, says Gloria Shulman, a mortgage broker and founder of Centek Capital Group in Beverly Hills, California.

"[In some areas] buyers can earn as much as 120 percent to 140 percent of the median area income and still qualify for some down payment assistance programs. For example, a buyer can earn $100,000 in Southern California and be able to get a grant for 5 percent of the home's total sale price," Shulman says. And even better, since it is a grant, it doesn't need to be repaid.

Here are a few other examples: In some states, there are programs that offer down payment assistance for single parents, says Bunni Longwell, a realtor with Keller Williams St. Pete Realty. And in Florida, Overton-Morgan says some families can qualify for up to $10,000 towards their down payment.

And if free money doesn't make homeownership more affordable, nothing will.