Can I Afford a House?

How to Get a Mortgage and Other Ways to Afford a House

If you’re looking to finance your first home, you’ll likely need to know how to get a mortgage. It’s best to start the process of choosing a mortgage broker early, in order to have preapproval in hand when placing an offer. Shop around first, before committing. Loan rates and terms can vary quite a bit from company to company, but you may be surprised to find you can afford a house with smaller down payments than you expect.

Choosing Your Mortgage Broker

Be sure to ask details of the company and the individual loans in order to compare your options. Realtor Magazine recommends asking the following questions:

General

What are your most popular mortgages, and why are they popular?
What type of mortgage plan would you recommend for me?
Do you require mortgage insurance? If so, for how long? How much will it cost?
Do you require escrow? If so, on what terms?
What bill pay options do you offer?
Can I get a discount for setting up automatic payments, taking a home ownership class, or any other reason?
Are your rates, fees, or other costs negotiable?

Loan Specific

Will you service this loan or will it be passed to another company?
How long will it take to pay the loan off? Are there any charges or penalties for paying this loan off early?
What is the total amount I will pay over the course of this loan?
Does my mortgage payment include homeowners insurance, property tax, or any other expenses?
Will my interest rate be locked in? If so, for how long? If the market rate drops, will I be able to obtain a lower rate?

Two Mortgages?

Sometimes, a second mortgage can be a good thing. If you are in good financial standing – that is, strong income, minimal debt, and a good credit score – you may be able to qualify for a short-term second mortgage. This would allow you to make a larger down payment while reducing the size of your primary mortgage. If you are hitting a loan size restriction, or are near an insurance tier, consider splitting your single mortgage into two.

For more about how to qualify for a mortgage, see our article “How to Qualify to Buy a House.”

Can I Afford a House Without a Mortgage?

As Realtor Magazine pointed out in “Finance a Home, Creatively,” mortgages aren’t the only way to finance your new home. Consider these alternative financing options.

Assistance Programs

There are a variety of local, state, and national assistance programs. If you qualify, you could receive a loan or grant making it easier to afford a house. State programs include the State of NY Mortgage Agency for qualified first-time homebuyers.

Rent-To-Own and Seller Financing

Renting while you save for your down payment will allow you to build up your funds. Often when you lease with the option to buy, the owner may apply part of the rental payment towards the final purchase price.

In other cases, if the owner wishes to sell immediately rather than maintain a rental, seller financing may still be an option. You may be able to negotiate a gradual payment directly to the seller, similar to a mortgage. Or if the seller has an existing mortgage on the house and the bank approves, you could take over that mortgage rather than opening a new one.

A Little Help From a Friend (or Family Member)

If you don’t qualify for a loan because of minimal credit history, perhaps a family member or close friend will be willing to cosign with you. A cosigner is someone who promises to pay back the loan if you fail to. Lenders will sometimes be more willing to risk a relative unknown if someone with a good established credit history cosigns.

Alternatively, a friend or family member may be willing to offer you a loan themselves. While this is unlikely to cover the entire cost of a house, it can still reduce the amount of financing you need to qualify for elsewhere.

A third way a friend or family member may help you to afford a house is through a shared-appreciation agreement. In this case, a third party or parties (friends, family, or other investors) buy a share in the house. The owner-occupant will generally pay property taxes, maintenance costs, and any mortgage required, but all the investors will be listed on a mortgage and all will split the money when the house is next resold.