How to Buy a House Without a Lot of Money Down

If you’ve ever wondered how to buy a house when you own, like, seven buttons, two convenient but probably overpriced subscription boxes and zero bitcoin, this one’s for you.

We’ve had quite a few questions over on Instagram, in reply to our newsletter, and from friends about buying our first home because it seems on the outside like it’s expensive, complicated and as though you need to speak to actual humans to do it successfully.

That last one is true, unfortunately, but in our experience it was a lot more attainable than you’d think.

First of all as a disclaimer, we aren’t realtors, accountants or experts at really anything except taking an inside joke way too far and using humor to get out of awkward situations.

But, hopefully sharing our experience helps you at least get jazzed enough to throw a couple bucks in the savings account or click ‘contact realtor’ on your nightly Zillow scroll.

Our homebuying story

We got married in early 2019 and knew right away we didn’t want to be spending an obscene amount of money on the wedding (did you know the national average is, like, $30,000?!)

We got a little bit of help from family in the budget, but funded most of the wedding ourselves so spent two years saving for our magical mountain-cabin-summer-camp-long-weekend wedding. We might be a little biased but it was the best wedding that’s probably ever happened.

Anyway, once we got back from the honeymoon we started this whole process with about $6,000 saved up in our bank account (which to be honest was mostly wedding gift money and our recent tax return).

Work on your credit

Hopefully this isn’t coming across very I bought my home because daddy gave me a down payment, but we also spent the couple of years before the wedding working on our credit knowing we’d be wanting our first home soon. I had only been in America a few years so had literally no credit score at all, which meant I had to get a $200 prepaid credit card and play the fun game of buying groceries with it then paying it off every month to start building up that number. I also bought a car with a TWENTY FIVE PERCENT interest rate that I kept for a year before trading in just to build up the credit.

Alex, luckily, had no student loans and my student loans are back home in Australia so aren’t counted in whatever system Americans determine credit score with. So, those are our circumstances but wherever you’re at, we’d recommend thinking about how to address your credit score a while before you’re even looking (if it’s not great).

Get a pre-approval and find a good realtor/lender

A pre-approval is when you apply for a home loan with a bank before you’ve got a house in mind, offer on the table, anything like that. Basically it gives you a max you’ll be allowed to borrow whenever you do find your home, and it’s really important to have before you start looking because sometimes things can move quickly or your market could be competitive and you don’t want to be behind everyone else in waiting for a bank to go over your finances, plus you want to know how much house you could realistically afford before even looking.

Another step is finding a good realtor that knows your situation, what you’re looking for, and how much you’re able to spend all-in. There are all kinds of things you can do to help save money like asking the seller of the house for help in closing costs (which apparently is pretty common for first time buyers) so a good realtor and lender will definitely help de-mistify the whole thing!

But what if I don’t have 20% down? Don’t worry

This is probably the biggest question we’ve been asked about how we bought our first home, because I think everyone kind of gave us side-eye thinking we somehow had like $40,000 in our bank account to put down on a loan. We definitely didn’t.

What we did have was that money in savings and an FHA loan. Through that program, we only had to put 3% down on the home we purchased and this is truly how to buy a house without a lot of money.

There are some pros and cons to that: if you put less than 20% of the purchase price down, you will have to pay something called private mortgage insurance which is an extra amount that you’ll pay in your mortgage note each month that pretty much safeguards the bank since you don’t have a lot of equity in the home yet. Though for us, the entire mortgage payment including that PMI was still less than we were paying in rent, so it was worth it.

To go over the numbers, our first home was $219,000 and 3% of that was about $6,500 we had to put down. Our mortgage note (which is the actual home payment, property taxes, home insurance and PMI all together) ended up being about $1,400 per month.

As a side note, we didn’t use these, but a lot of cities and counties have down payment and closing cost assistance programs if you make under a certain amount of money per year which could be helpful to look into!

But aren’t you throwing money away that way?

Kind of, yes – our PMI was $150 PER MONTH. It’s definitely one of those situations where you just do it because you’re playing the long game. We’re millennials, and we just want to clear things up here; None of us are out there buying so much avocado toast that we can’t afford a house. We’re just trying to get by, are probably older than boomers think we are, and are now trying to care for children while simultaneously avoiding making a doctor appointment over the phone.

If we had to save that $40,000 for our 20% down, we would truly never own a house, so we went for it with the 3% option and it was a great way to get into the market.

Compared to our rent, which had been $1,450, we were at least building towards something we owned ourselves.

We had lived in the city where we bought for about six months before starting our search which really helped to understand the neighborhoods. We found a place about three blocks from where we were renting, and it was priced well for the area (read: not a dump, but also had higher-priced homes nearby that showed it had some potential to increase value).

We knew it wouldn’t be our forever home, and knew we were about to lean in hard to the DIY life, so had possibly overinflated confidence in our ability to increase the home’s value.

Where to from there?

We stayed in that home for a little more than a year and (probably about 45% of this was luck, but) we were able to sell for our first home for enough of a profit to put a 20% down payment down on our second house. We did do a whole kitchen remodel that wasn’t DIY, it had a new roof and we were really diligent about keeping up regular services of appliances like the HVAC system, so I think that helped.

Also, ya know, a whole ass pandemic happened which weirdly skyrocketed housing prices, so there’s that. We loved that house so much and still miss it, but also decided to move back to Florida in our new-parent shutdown anxiety-ridden haze. You can read more about that decision here if you’re curious.

We moved into a home that’s actually in worse condition than the first one we bought, but it’s got a whole lot of potential and has come so far already.

Our ultimate hope is that we can own a rental one day, or at least buy homes, renovate them while we live there and sell them every few years because we are pretty much addicted to house projects and giving old houses new life.

Hopefully this rundown on how to buy a house was helpful, and remember, this is super specific to our situation, location and finances. We know there’s a whole lot else that goes into someone’s financial situation, but we hope your takeaway if you’re a young, non-homeowner is that you can buy a house without having tens of thousands of dollars saved and without it needing to be your ultimate dream house. What matters the most is making it your own, as cliched as that sounds, and now I’m going to go cry thinking about having left the house where we started our married life together and had our first baby. It’s fine, I’m fine.

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