Buying a home on a budget
For those living on a tight budget, homeownership may seem like an impossible pipe dream. However, with careful – and accurate – budgeting, it is possible for many families to own a home sooner than they think. The following tips can help when preparing to buy a home on a budget.
- Calculate your earnings and expenses
The first step in buying a home on a budget is calculating how much you earn each month; this should include income from primary employment as well as any other streams of income. If your income varies month-to-month, such as small business owners or seasonal workers, make calculations based on the lowest monthly income from the past 12 months.
The next – and arguably most difficult – step is adding up all of your monthly expenses. This includes loans, insurance payments, credit card debt, utilities, rent, food, entertainment, savings, vacations, medical expenses, charitable contributions, and more.
- Estimate additional home-ownership costs
Homeownership costs more than the amount of the mortgage. Be prepared for expenses during the buying process by setting aside savings for earnest money, additional inspections, and closing costs. Likewise, calculate any additional expenses that will change after purchase, such as budgeting for HOA fees, maintenance and repair, new furniture and décor, lawn care, or changes in utilities.
- Separate your wish list from your must-haves
Looking for a home on a budget often means making some compromises. Separate your must-haves from your wish list; being willing to compromise on a spare bedroom, outdoor space, or parking may help you find a perfect property within your budget. Being willing to move past your ideal neighborhood or extend your commute by 10 minutes can sometimes be the key to finding everything you want in a home.
Likewise, don’t be afraid to look at homes that have an “unpopular” aspect to the listing. This could be a house on a busy street, a neighborhood without highly-rated schools, or a less-than-trendy part of town. Many of these homes are overlooked by other buyers but can check everything off your must-have list.
- Consider income properties
While being a landlord may not be for everyone, purchasing a property with income potential can help expand a tight budget. Whether it is taking on a roommate, purchasing a two-family home, or looking at a home with a separate rental unit, sharing home expenses can help defray costs. However, be sure to be conservative with estimates and plan for occasional vacancies and increased maintenance costs.
- Be patient
Don’t rush headlong into homeownership; be patient and wait for the right property within your budget. If your credit score needs improving, waiting six months and working on improving your credit can help you qualify for lower interest rates. Likewise, taking a few extra months to further build your savings can improve your buying power or increase the amount of your down payment and help you avoid costly PMI (private mortgage insurance).