Nine ways to afford more house without more cash

Get creative to afford more house in today’s market

Home buyers are feeling the affordability squeeze, with high home prices on one hand and rising rates on the other.

If you’re looking at paying more for a house, one option is to save more cash. The more you can put down toward your purchase, the more home you can afford.

But saving up takes time. And home prices are likely to just keep rising. So why not get into the market now? With a few creative steps, you might be able to afford more home than you thought — without waiting to save more cash. Here’s how.

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Nine ways to afford more house without more cash

Rising mortgage rates can have a big impact on home buyers.

When rates go up, buyers typically do one of two things: they either buy a home in their original price range and accept higher payments or keep their target mortgage payment the same and settle for a cheaper house.

In most cases, higher mortgage rates will require some level of compromise along those lines. But you don’t need to completely change your home buying plans — or throw in the towel altogether.

In fact, there are plenty of ways to boost your home buying budget in this market, even without saving for a bigger down payment. Here are ten of the best strategies to afford more house in a high-rate environment.

1. Apply for down payment assistance

There are more than 2,000 down payment assistance programs (DPAs) across the country. Many of these home buyer programs are run by state and local governments. And one or more will operate where you wish to buy.

Down payment assistance can help cover your down payment and often closing costs, too, which might boost your home buying budget when added to your savings.

DPAs are mostly designed for first-time home buyers. But there’s a good chance you could find assistance even if you’ve owned a home in the past. If you have a relatively modest income for the area where you’re buying, you might be in line for cash help.

Down payment assistance usually comes in one of four forms:

1. Outright grant: This never has to be repaid
2. Forgivable loan: This has no monthly payments and a 0% interest rate. The loan is forgiven, often over the years, as long as you remain in residence and don’t sell or refinance
3. Deferred loan: Also has a 0% interest rate and no monthly payments. But you have to pay the sum back when you sell, refinance, move out or finish paying down your main mortgage
4. Repayable loan: This is typically repaid on a monthly basis in conjunction with your main mortgage, usually with an affordable interest rate

Every down payment assistance program is different and many have special requirements such as income limits and purchase price limits. So talk to your lender about what’s available where you live and whether you qualify.

2. Use a down payment gift

Do you have a loved one who’s well-resourced and generous? If so, lenders are generally fine with you using gifted money to cover some or all of your down payment. But you have to follow specific rules about how to give and receive a cash gift.

You must:

• Properly document the arrangement using a formal gift letter
• Provide a paper trail showing the money moving from the donor’s account to your account, together with the ultimate source of the funds
• Be absolutely clear that the money is a true gift. It can’t be a loan in disguise

The gift doesn’t need to cover your full down payment, either. Even a minor cash gift could supplement your own savings to help you afford a more expensive house than you would otherwise be able to.

3. Get closing cost assistance

One way to raise your home buying budget is by lowering your out-of-pocket closing costs. The less money you have to pay toward fees, the more of your savings you can put toward your down payment. And that will help increase the home price you can afford.

Many (though not all) down payment assistance programs can help out with your closing costs, too. And even if you don’t qualify for DPA, there are other ways to find closing cost assistance.

For example, sellers sometimes help out. That’s rare at the moment because most places in the U.S. are “sellers’ markets,” meaning buyers are the ones doing all the running. But if you want to purchase a home where there are more sellers than buyers, your seller may be motivated to help you in any way they can.

Meanwhile, some mortgage companies offer “lender credits.” With these, you pay a slightly higher mortgage rate in return for reduced or zero closing costs.

And, finally, you could always ask a relative to contribute to your closing costs if you know someone who would be willing to help out.

4. Find special mortgages in your career field

Certain professionals can get special mortgages with low or zero down payments and competitive interest rates. These are often available for public servants like first responders, firefighters, teachers, and clinicians, including doctors and nurses. Some states, cities, and counties extend mortgage assistance to government employees as well.

Eligible buyers should also check out the Department of Housing and Urban Development (HUD)’s Good Neighbor Next Door Program. This offers a discount of 50% off the list price of a home to law enforcement officers, teachers (pre-Kindergarten through 12th grade), firefighters, and emergency medical technicians. “In return, an eligible buyer must commit to live in the property for 36 months as his/her principal residence.” The catch? The home must be in a designated revitalization area, which may not currently be a desirable neighborhood.

5. Consider an adjustable-rate mortgage (ARM)

Many buyers are wary of ARMs during times of rising interest rates. But the low intro rates on ARMs can often be a full percentage point or more below the equivalent fixed-rate mortgage. And locking in that low rate — even temporarily — could seriously increase your home buying budget.

Whatsmore, ARMs might not be as scary as you think. Nowadays, almost all adjustable-rate loans come with an initial fixed-rate period of five to 10 years. If you know you’re going to be moving again within that period, you can benefit from your ARM’s lower rate with very little risk.

For example, suppose you’re sure you’re going to move again within the next five or seven years. A 5/1 or 7/1 ARM would protect you because that ‘5’ and ‘7’ are the number of years the loan has a low, fixed interest rate. The only risk is that your plans change and you decide to stay put for longer.

Note that ARM borrowers often have to qualify for the loan based on the “fully indexed rate,” meaning the highest your rate could possibly go, after adjustments, within its set cap. This is to ensure borrowers can afford their home loans even if their rates rise.

For more information, see: Perks and pitfalls of adjustable-rate mortgages

6. Negotiate a lower mortgage rate

The lower your mortgage interest rate, the more home you can afford to buy. Even in a rising-rate market, some lenders offer substantially lower rates than others. That’s why you should comparison shop for a mortgage. You could improve your home buying budget by thousands of dollars by doing so.

You don’t have to simply accept your best quote. Call lenders and play them against each other. Tell lender A that lender B offered you a lower rate and ask A to match it. In other words, make lenders compete for your business.

Mortgage lenders had a bumper year in 2021 and could hardly keep up with demand. But things are much quieter in 2022. And that means many companies are more willing to work for your business. So use the market to your advantage.

7. Count renter income toward your mortgage

If you currently have a roommate or renter who’s planning to move into your new home with you, you might be able to use their rent payments to help you qualify for a mortgage. Certain home loan programs allow rental income to supplement your own income, thus increasing the loan amount you can qualify for.

For example, Freddie Mac allows this with some of its conforming mortgages, which are available from most lenders. Freddie explains, “A renter with two long-term roommates wants to make the jump to homeownership and will bring [their] boarders with [them]. With Home Possible, [they] can use rental proceeds as qualifying income for [their] mortgage.”

Fannie Mae’s HomeReady loan has a similar provision allowing borrowers to count renter income on their application as long as the renter has lived with them for at least a year prior to getting the mortgage.

Both these loan programs allow just 3% down payment and have reduced private mortgage insurance (PMI) costs. Though it’s worth noting that homebuyers must be within local income caps.

8. Count side income toward your mortgage

Your lender will be most interested in your salary or self-employed income when deciding how much to lend you. But it’s possible to include other income sources on your application, too, provided you can document them.

Suppose you have a second job, perhaps doing gig work or freelancing. Or maybe your receive regular bonuses or commissions. If any of those apply to you, tell your lender. That extra income might help you afford a bigger mortgage than you could otherwise.

Just note that any side income still needs to be properly documented via tax forms, and you typically need to have a two-year history of earning that type of income for lenders to count it on your application.

9. Clean up your credit to afford more house

You should do everything possible to boost your credit score before applying for a mortgage loan. A higher score may well earn you a lower interest rate. And that can mean either a bigger loan or a smaller monthly payment.

The first step is to get hold of your credit reports. You’re legally entitled to a free copy annually. But you should apply only through one website: AnnualCreditReport.com. The three big credit bureaus jointly own that site.

Once you have your three reports, go through them line by line. Errors are common. Indeed, a 2021 survey by Consumer Reports showed that one in three respondents found at least one error in their credit history. A federal regulator lists the most common errors.

Usually, it takes ages to get errors corrected. But now there’s something called rapid rescoring that can help raise your FICO score faster. Loan officers use rapid rescoring to help boost a homebuyer’s credit score in a matter of days. Instead of taking months, rapid rescoring expedites the time it takes to update credit report information and issue new credit scores.

Some borrowers report this has raised their scores by up to 100 points. And that could make a massive difference to your final mortgage rate, allowing you to afford more house without more cash.

The bottom line when you need to afford more house

Rising mortgage rates are tough on home buyers, but they don’t need to put your homeownership dreams out of reach. Thinking creatively about your financing can make a big difference in the home you can ultimately afford.

To get started, connect with a mortgage lender who can help you compare your options and work with you to maximize your home buying budget.