Buying a house can be a scary prospect. Taking on a huge monthly payment for decades at a time - why would anyone want to do that? Because it's part of the American dream and because when done right, it can boost your net worth and make you money in the end.
So how do you do it right? To make money and immediately increase your net worth, you need to buy a house for cheap and improve the value of it. There are many ways to avoid paying full price for a home. Here are just a few.
Foreclosures
Someone else's bad luck can be turned into your good luck. As awful as that sounds, it happens all the time and there is no need for you to feel guilty about it. When a homeowner stops making their mortgage payments, the house goes into foreclosure.
To buy a foreclosure, you work with the bank that is trying to recoup the money from the original loan. That is why foreclosures are a great deal - they are often listed well under what they are worth.
You will need loan pre approval and a real estate agent working on your behalf. There may be multiple offers on the house, so be prepared to pay more than list price.
Short Sales
A short sale is a way for the homeowner and the bank to avoid a foreclosure, because the bank allows the homeowner to sell the house for less than what they owe on it. It's a better deal for the bank because they don't have to go into formal foreclosure proceedings, and it's better for the homeowner because they can get out from under their house.
The downside for you as the buyer is that this process can take a long time, as the banks are in no hurry to approve your offer. The list price may also be under market value, which can create a bidding war among buyers. To have your offer seriously considered by the bank, make an offer that is close to market value for the home.
Auctions
There are many benefits of buying a house through an auction, for both parties. For a homeowner who puts their house up for auction, they're ensured a quick, fair sale to a motivated buyer. As a buyer of an auction home, you're also guaranteed a quick sale, you get to set the price you are willing to pay and you are privy to the offers other buyers are making.
One fair warning on auction houses: They come as-is, so any damage done while the property was inhabited or vacant will be on the buyer to fix. Having a handyman ready for closing day is a good call.
Go Nontraditional
If a traditional stick-built house just isn't in the cards, go for something nontraditional like a modular home. Modular homes are more cost-effective because they are built rapidly indoors. The speed and efficiency enables the builders to pass savings along to their customers.
Getting financed for a prebuilt modular home is just like buying a stick-built house, but if you are having your home custom-made, then you'll need to secure a construction loan. Once the construction is complete and the house is in place, you can convert your construction loan into a standard mortgage.
Rent-to-Own
When you find your dream home but your finances aren't quite yet in order, you can ask for the option of rent-to-own. This allows you to move into the house and pay rent, part of which goes toward the purchase of the house when you are ready to buy. Depending on how long you rent before you buy, you can substantially reduce the amount of loan you need to take out from the bank.
The lower the loan, the less interest you end up having to pay back in the end, so rent-to-own can be a win-win situation for all involved. Unfortunately these situations can only occur when the seller doesn't immediately need the funds from the sale of the house, so not everyone will be open to this arrangement.
You don't have to go the traditional route when it comes to home buying. In fact, if you are trying to buy a house on the cheap, traditional is not the way to go. Sometimes, nontraditional methods of purchasing a home require more upfront work on your end when it comes to securing finances and the closing might take longer. However, the money you will save in the long run will be well worth it.
