7 creative ways to buy your first house

The instant neighborhood

Cohousing has its origins in Europe and is practically like buying a neighborhood along with your house. Residents own one of a group of small homes clustered together and share ownership of the land.

In 1992, Tom Moench and his family bought a small (1,150-square-foot) 3-bedroom house for $157,000 in a cohousing development on Bainbridge Island, Wash. A similar private home would have cost about $185,000 then, or 17% more, Moench estimates.

Pros: In many cases, property prices are lower than market. And though houses tend to be smaller, residents share ownership of the common facilities. "We had a 5,000-square-foot common house, with guest rooms and dining rooms where you could entertain large groups," Moench says. Residents may cook meals together or swap baby-sitting time.

Cons: Cohousing is largely a blue-state phenomenon with vaguely utopian overtones, but it's slowly spreading throughout the country. You need a high tolerance for meetings, because many decisions have to be made jointly by the owners. When selling your property, there may be some restrictions, and the buyer has to want to join a communal setting.

Find out more about cohousing here.

The parental plan

Saving enough for a down payment usually requires some kind of a sacrifice, so don't rule out living with family.

Case in point: Saddled with hefty school loans and about $25,000 in credit card debt at the end of their medical residencies, Sonya Cottone, in her late 30s, and her husband decided to move in with his parents for a year to pay off their plastic and save for a down payment. "People thought we were crazy," she says. "But it worked out really well."

Pros: Can you say super savings? Within 15 months, the Cottones had paid off their credit cards and saved enough to put $50,000 down on a four-bedroom colonial in Long Island, N.Y. "And we're all still speaking to each other," she jokes.

Cons: Mixing family and finances can be a stress cocktail. To diffuse tension, Cottone says, discuss money and expectations up front (everything from paying rent to doing chores). And though your savings will make you feel flush, "don't see it as extra," Cottone says. Stick to your savings strategy or you'll be living with Mom and Dad for years.

The no-money-down Hail Mary

It can be tough to save enough cash for a down payment, but in certain circumstances you can finance your way around it.

Case in point: Kerrie, late 30s, bought a small two-family home in Brooklyn for $560,000. "I didn't put any cash down," she says. "I did an 80% mortgage and a 20% second loan. I used my $30,000 in savings for renovation."

It's a risky strategy, but it worked for Kerrie because a) the property was undervalued and b) she knew that a basic overhaul would bring it up to market value, which it has. Her upstairs renter offsets part of her costs.

Pros: You can buy a house without any upfront cash.

Cons: You need to have nerves of steel (in case property values drop) and be willing to live in contractor hell for a few months. And if your credit is less than stellar, this may not be an option at all.

The susu-super saver

This simple saving strategy goes by different names in different communities, but the method is the same. Members of a "susu" contribute a fixed amount each week or month for a certain period (e.g., $200 a month for 10 months). At regular intervals, one member gets a specified payout in cash.

• Video: Buy your first home within a year

Case in point: Laverne, a single mother in her 50s, has participated in over a dozen susus over the last 20 years.

Pros: Although the amounts are small, usually under $10,000, a disciplined saver could participate in several susus to fund a down payment.

Cons: Only communal pressure and the honor system ensure that everyone gets their turn (and that folks don't default). And your money doesn't earn interest.

But wait, there's more

In the course of excavating all these options, I came across a wide array of federal, state and local programs designed to help first-time buyers and low-income buyers purchase a home. For example, you may be able to borrow from your 401(k) or take money from an IRA (you escape the 10% early withdrawal penalty, but not income taxes). The Federal Home Loan Bank sponsors programs that match savings, $3 for every $1 put aside. There are loan subsidies for buyers in rural areas and in inner cities, too.

The best place to start is with your state's housing finance agency. Find out more about what these agencies offer here. To find your own state's housing finance agency, click here.

Updated April 28, 2009

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