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Ideally, you want to get rid of your debt before you buy a home. Unfortunately, this is not an option for some people.
Our society has made credit use the norm. In fact, a lot of establishments have made it very easy to use credit when it comes to transactions. This convenience contributes to our tendency to abuse the use of credit. We feel that credit is an extension of our wallets. It gives us the confidence to buy more than what we can really afford at the moment.
When debt is abused, it can compromise our future purchases - including your ability to buy a home. Not only that, buying a house usually requires us to borrow money. After all, this is a very expensive purchase. Not everyone can afford to buy a house in cash. If that is the case, your current level of debt might make you ineligible to borrow a home loan.
The good news is, you can still buy your own house even if you have debt. It will be difficult, but it is not impossible.
It usually makes more sense if you opt to buy a house through credit. While you have the option to rent, it is more practical to buy a house - even if you have to borrow money. Every payment will go to the equity of the property which will increase your personal net worth. When you continue to rent, you are merely giving your money to someone else.
Why not just borrow a home loan and start building the equity of your house?
Options for buying with struggling with debt:
Buying a home can be a very expensive purchase. While it can be hard, it is not impossible to buy your own home. You have two options to become a homeowner despite your debt situation.
- Opt for a small house. Tiny houses are such a big thing right now. If your parents have a backyard and the zoning laws will allow it, you can buy a tiny house for $20,000 to $50,000. You can park it in your parent’s backyard. You can pay them rent and utilities and still maintain your privacy.
- Try to buy a home that can pay for itself. Another option is to buy a home with a basement or garage that you can convert into a one-bedroom or studio unit. You can lease this space to someone else and use their rent to pay for the house. You get to live on your own property and earn from the rental income.
When you buy a house, make sure you only buy what is necessary. Just because you got approved for a $500,000 home loan, it does not mean you should look for a property that costs that much. Look for a home that is just right for your needs and try to get the cheapest that you can buy. Not only that, make sure you know the where to get loans that will allow you to pay a low down payment. For instance, getting an FHA loan will allow you to pay as low as 3.5% down payment.
Benefits of buying a smaller home
If you do not mind living in a smaller house, it might make more sense to buy a home that is smaller than the average. There is this thing called the Tiny House movement that is sweeping across the country. People are opting to buy a tiny house because of a couple of benefits.
- It costs a lot less. As mentioned, you can buy a tiny house for $20,000. If you build it on your own, it might cost you even less. There are countless stories of people who have built their own tiny homes - sometimes for less than $20,000.
- It allows you to live for less. According to an infographic published on RestoringSimple.com, people opt to live in a tiny house because of the reduced costs. You will not only save on the purchase of your house. You can also save money on your utilities. A smaller house will not cost you a lot of money in terms of upkeep. It will not cost as much to heat or cool a tiny house. That can really lower your monthly budget.
- It minimizes the need to buy more. Since your house is small, you will have a less space for personal belongings. This will lower the temptation of buying anything for your home. You do not need a big furniture and usually, everything is built into a tiny house. This will minimize the expenses when you are moving in your new house.
What you need to know about buying a house that can earn you money
Another way to buy a home while struggling with debt is to choose a house with an accessory dwelling unit (ADU) that you can build and rent out for profit. This can be a basement, attic or garage that you can rent out.
ADU’s are separately regulated and have been banned in states. Either that, or they are subjected to extreme restrictions.Lately, there seems to be some leniency because it can solve some housing issues. According to CityLab.com, it provided one Colorado city with affordable housing options.
If you own a house with an ADU, you can use the income to cover your monthly mortgage payments. It might even help you with some of your debt payments.
There are two ways for you to earn from ADUs.
- Long-term. This means you will rent the unit to a long-term tenant who will stay for at least 6 months. The rental rate will be on a monthly basis. This option will help you earn a steadier income but the rental rate per day will be significantly smaller compared to the next option.
- Short-term. This option means you will rent out the ADU for days at a time. The rental rate will be on a daily basis. While this will help you earn a higher rental rate per day. However, this may not give you a steady income like the long-term option. There may be months when your income is higher because of the tourist season but there may be times when you hardly have any income at all.
As you can see, you can buy a home even if you have debt. You just have to come up with a strategy that will not compromise your debt payments.