7 creative ways to buy your first house

A pricey market poses big challenges for first-time buyers. Though some are daring, one of these options might be for you.

By MP Dunleavey

So you want to buy a place of your own but can't figure out how to pull together the necessary cash and financing? If you're willing to think creatively, there are several offbeat ways to buy your first home.

The fixer upgrade

When you can't afford what you want, look for what you can afford and use it as a stepping stone.

Case in point: Jamie Carroll, 46, and her husband bought an $80,000 two-family house about six years ago. They renovated, sold it and invested in a $200,000 two-family place in a nicer town. In a few years, they'll repeat that process and buy their dream house in the woods of Massachusetts.

Their first house was far from ideal, but the down payment was only $5,000, and the rental income allowed them to pay for repairs without incurring more debt. After the sale, they walked away with more than $30,000. Ditto in their new home, but the rental income is higher, so they'll save more toward their next purchase -- enough so that they can buy the new house and keep the rental property as an investment.

Pros: There are plenty of lower-priced houses out there in need of repair, and the income from a tenant can help both with repair costs and mortgage payments. Even in overheated markets, there's little likelihood that the value of homes at the low end will suffer in a slump.

Cons: This method isn't for the impatient or the status conscious. To save money, the couple did many repairs themselves, and it will be almost 10 years before they can settle into their dream house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.

The shared load

If buying your own property is prohibitive, consider buying into a dwelling with shared ownership. There are several options here, with varying levels of complexity and commitment. One of the most common uses a legal form of ownership called "tenants in common."

Case in point: In 1991, when the average San Francisco one-bedroom apartment was selling for about $250,000, freelance writer Sharon Fisher paid $170,000 for a one-bedroom in a tenants-in-common building with five other units. "I couldn't have bought real estate without this," she says.

Fisher eventually sold her TIC share for a tidy $420,000 when her building went condo. However, she says it would have sold for less if it had remained a TIC, and she would most likely have had to pay the buyer's legal fees.

Pros: Buying into a TIC is less expensive, and this form of joint ownership does a better job of protecting the rights of individual owners (as in the case of unmarried partners who want to buy property together).

Cons: Joining a TIC can be legally and financially complicated, and the details vary from state to state. Some TICs may restrict when you can sell and impose other conditions. And though you own your own place, you need people skills: Tenants negotiate noise, repairs, who puts out the garbage, etc.

The friendly option

If you don't want the legal hassle of setting up a TIC, it's possible to buy a property with a friend you trust, sharing the mortgage and the title. This form of ownership is called joint tenancy, and it's the way most married couples hold property.

Case in point: In 2003, Bryan, 34, bought a three-bedroom house with a buddy for $299,000. They each put down $10,000, and they rent out the third bedroom to a friend, which helps cover costs.

Pros: The two are only paying slightly more than they would in rent, while they're building equity and the house is appreciating.

Cons: The legal particulars of joint tenancy vary from state to state, so you'll need to check with a lawyer. Under joint tenancy in many states, any owner can force the sale of a house or transfer ownership rights without the permission (or even knowledge) of the other owners. The costs and all decisions about maintenance and financing are shared equally, which is fine so long as everyone agrees.

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-sq.-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 babysitting 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.

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, 37, 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. "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, 36, bought a small two-family home in Brooklyn for $560,000 last February. "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. In a year, Kerrie plans to refinance her adjustable-rate mortgages and get a 30-year fixed mortgage. Meanwhile, 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. .

Case in point: Laverne, a single mother in her 50s, has participated in over a dozen susus over the last 20 years. Right now she's in a 26-week susu in which each member will get $7,000.

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.