As previously discussed in the post 5 Simple Steps to Improve Your Financial Situation, living expenses are by far the largest expenditure for the average individual. In this article, I will show you a way that can enable you to not pay rent, and sometimes even get paid to live for free.

House Hacking

What is house hacking? House hacking is when you purchase a multi family home, live in one unit, and rent out the rest. This is called house hacking because the rent that you charge your tenants is used to pay off your mortgage and you get to live for free. In some cases, depending on the deal you may even make money from house hacking while living there if the rents you collect from your tenants are greater than your monthly mortgage. Not only are you living for free but you are now building equity in a property without paying for it!

It is important to note that you can also house hack with a single family home, by renting out rooms to individuals to help cover the cost of the mortgage.

I know what your thinking, “Sounds awesome, but there is no chance that I can afford a 20% down payment for a house”. I’m here to tell you that you do not need 20%, there are other loan options out there. Keep reading and to learn more about different loan options.

 FHA Loan

FHA stands for Federal Housing Administration and is a government loan program that was created to assist first time home buyers. Unlike a conventional mortgage, a FHA loan does not require you to put a 20% down payment to purchase a home. If you have a credit score of at least 580 you can qualify for an FHA loan which allows you to put only 3.5% down on your first home purchase! If your credit score is between 500-579 you can qualify for an FHA loan that only requires a down payment of 10%.

If you were previously looking to purchase a home for $100,000 using a conventional mortgage then you would need to cough up $20,000 to receive the loan, but by using an FHA at 3.5% you would only need $3,500. This is a much easier amount for the average person to save up, and voilà, now your housing expense can be dramatically decreased. For more information regarding FHA loans check out this website. It is also worth noting that FHA loans require that you live in that property for at least one year.

USDA Loan

This is a home loan program backed by the U.S. Department of Agriculture. This program is one specifically for low-income earning borrowers in comparison to income averages in their area. It also offers the bonus of 0% down, lower mortgage rates than the market and reduced mortgage insurance premiums. A quirk of this loan is that it must be for a property in a rural area however, after looking through their database, they have a lenient sense for rural.

Unlike the FHA loan, this one is not limited to first-time buyers and with a credit score of 620 and up, you will likely qualify. This home loan is meant to be for your primary residence but allows you to purchase a multi-family home if you live in one of the units. Check out this website for more information.

VA Loan

Another alternative to a conventional mortgage is a VA loan. This loan may not apply to you as it is strictly for those who have served in the United States Military. The VA loan offers many advantages for those who do qualify for it. The two huge advantages are

#1. You can purchase a home for 0% down

#2. You do not have to pay private mortgage insurance (PMI)

These are massive advantages that pretty much give you no reason to not be house hacking and saving that rent you have been paying every month. For more information about VA loans check out this website.

Gi & Jake’s House Hack

Gina & I decided that we no longer wanted to throw money out the window every month for rent and decided to experiment with a house hack. Since I currently don’t qualify for a VA loan due to the years of service requirement, we decided to use an FHA loan to purchase a multifamily property. After looking at many homes and making a number of offers we finally got an offer accepted. The property is a 4 family that is fully rented out. Gina and I chose to live in the smallest of the 4 units as it brought in the least amount of rent. We now pay ZERO each month in rent and are both able to save considerably more.

Final Thoughts

The three loan programs mentioned about are just three of many ways to start house hacking. If you can cut down on your housing expense or cut it out of your monthly expenses completely, you can radically fast-track your path to financial independence. Let us know in the comment section if you have experience with any of these loan programs!