Getting started on the homebuying process can be difficult—particularly for first-time homebuyers, who can’t rely on selling a home to help them afford a new one. Fortunately, there are a lot of ways to prepare to afford a home, not all of which involve padding your bank account. Here are 5 tips to help you afford your first home.
1—Do the Math
Online mortgage calculators can be a tremendous tool to help you determine how large of a mortgage you can afford. Just search “Mortgage Calculator” and you’ll immediately find hundreds of options.
How can a mortgage calculator help you afford a home? The tip is in knowing how much a mortgage payment costs. If you look up the price of different homes with different mortgage rates and compare those numbers with your income, you can get a pretty good idea of how large of a mortgage you can currently afford. Keep in mind this oft-repeated advice from the experts: where possible, keep your monthly housing payments (mortgage, insurance, HOA fees, etc) 30% or less of your monthly gross income. If the combined expenses of a home exceed that amount, it’s probably out of your budget.
2—Research Your Options
Having a good working knowledge of what homes cost, what rates are for your credit profile, and what types of homes are available can help you find a home that you can afford. When researching your options, there are a lot of things that you’ll learn and that professionals will suggest you keep in mind, so try to determine what’s most important for you to focus on:
Some borrowers are able to afford a monthly mortgage payment but can’t afford a down payment right now. These borrowers should consider looking into down payment assistance programs—in many markets borrowers can accumulate more wealth over time by buying a home now rather than saving up a down payment and buying a home later.
3—Make and Keep a Budget
Becoming a homeowner is an important commitment—for most people, your home is one of the biggest financial investments you’ll ever make. Are you financially disciplined enough to spend within your means and make on-time monthly payments on a mortgage? Making payments on-time and living under-budget are important skills to turn into habits before owning a home.
In addition, going through your finances and seeing where you spend your money can help you recognize how large (or small) of a home you’ll be able to afford in the first place. It’s ok if your first home is smaller than you imagined—starter homes exist for a reason.
Part of making and keeping a budget includes paying off debts, which has two great benefits. First, you’ll have more income to spare, which will help you afford a mortgage payment. Second, paying off your debts can help increase your credit score, which in turn can help you qualify for a lower rate on a mortgage, and therefore a lower monthly mortgage payment.
4—Don’t Set Unrealistic Dreams
As we mentioned before, starter homes exist for a reason—they can be a good training ground for the demands of homeownership. An enormous, expensive home with lots of leaky faucets to fix and a gigantic lawn to care for might sound enticing, but it can easily be overwhelming for first-time homebuyers, even if they can afford it.
When hunting for homes, use all of this information you’re collecting to determine a price range, location, and house type that you can reasonably afford, then try to find your dream home there. Many borrowers find it hard to be happy with homes that fit their budget when they go to showings for homes they know they can’t afford, so for most it’s a good idea to only have your realtor take you to visit a home that you should be able to afford if you were to purchase it.
5—Be Patient
Believe it or not, even in this crazy seller’s market with homes being snapped up overnight, a little patience goes a long way. Borrowers who rush into purchasing a home can find themselves in all kinds of trouble, including unexpected and expensive repairs, neighborhoods rougher than they expected, or simply financial shock over the unexpected cost of making mortgage payments. Being patient may mean passing up some home opportunities that seem promising, but patience ends with you finding the home that’s perfect for you.
Keep in mind that patience comes in many forms—for example, patience doesn’t mean waiting six months to find the exact right home for you if your lease is up soon and you need to move out in a month. In that situation, patience could mean taking the time you need to breath, destress, and take a break before throwing yourself into hunting for homes and good mortgage deals again.
« Three Steps For Millennials To Prepare For Their First Home Purchase