While owning a home may feel like a pipe dream if you’re on a tight budget, there are ways to make it happen. While you may not be able to purchase your “perfect” home, you can probably afford one even with limited resources.
The more you’re able to put down on a home, the higher the loan you’ll qualify for and the easier the process will be, but that doesn’t mean you can’t buy if you don’t have a lot of cash on hand. Consider these options for fulfilling your dream of becoming a homeowner with limited financial flexibility.
Be Open to Compromising
A tighter budget usually means making at least some compromises. Make a list of priorities, with the must-haves at the top, such as a certain number of bedrooms to accommodate everyone in your family. By identifying the top three or four requirements, it will allow you to focus your search and reveal where compromises can be made.
You may need to purchase a “starter home,” such as one that’s on a busier street or without the best school system, as they’ll be priced lower than homes in the best areas. While the schools do matter when it comes to value, if you don’t have kids yet or won’t have one ready for school for a few years, it may not be as much of a concern, for example. You might be able to build enough equity that allows you to sell and make a profit down the road so that you can move to a more desirable neighborhood.
The key is to separate the must-haves from your wish list. By giving up an attached garage, a large fenced-in backyard, or a high-end kitchen, you might be able to find a home that fits your budget.
They say patience is a virtue, and that’s especially true when it comes to homeownership. Taking the time to save and increase your down payment will reduce how much you’ll need to borrow and potentially eliminate the need to pay costly private mortgage insurance (PMI). Using a house payment calculator, you’ll find that monthly payment may be much more affordable than you think, especially if your credit score is also up to par.
Speaking of credit, if your score is not that great, take steps to improve it first to get a better interest rate on a home loan which will reduce your monthly payments.
Consider a Fixer-Upper
Purchasing a home that needs some cosmetic work can be a great way to stretch your dollar. You’ll want it to be structurally sound, with relatively inexpensive fixes that need to be made, such as painting, replacing carpets, and updating fixtures.
Keep in mind that big problems like installing new piping or wiring to get a space up to code, or mold damage, are best avoided as those issues can all be very costly to resolve.
Buy a Foreclosure or Short Sale
If you buy a foreclosure, which is a home that the lender has reclaimed when an owner has failed to keep up with the loan payments, it can get you a great deal on the price.
With a short sale, a lender agrees to allow the homeowner to sell a property despite being underwater on a mortgage. The property can be sold, and then the lender will accept the proceeds that result as the mortgage payoff. Lenders in these situations usually want to sell quickly, so a lower price can often be agreed upon.