In an area with a high cost of living, a competitive housing market can make it difficult to afford a home. Especially if you're renting, you may be putting a large portion toward rent payments each month, which can make it difficult to save money for a down payment.
Yet purchasing a home has many advantages. For one, building equity is a great financial move and can help lay the groundwork for future financial health. Having a set mortgage payment can also help you budget month-to-month since rent payments usually increase each year, especially in areas with a high cost of living.
But getting a mortgage isn't always that easy, and depending on where you live, you may find it difficult to qualify for a mortgage or afford the monthly mortgage payments. Here are seven practical suggestions on what you can do to help you afford to buy a home.
- Buying a home isn't always easy, but there are some steps you can take that may make the process easier for you.
- You can save up for a larger down payment, find a property with a unit to rent out, look in a variety of areas, or consider a fixer-upper.
- You could also apply for homebuyers' assistance programs, try a rent-to-own option, or look into alternative loans.
1. Save Up a Down Payment
One option is to save up a larger down payment so that you can afford a home that fits your needs. A larger down payment will decrease the amount you need to borrow for the home, which means that you can afford a more expensive home. Saving up a down payment can also help you determine that you are ready to buy a home.
If you are struggling to come up with a down payment, you may want to get creative in the way that you handle your money. Consider living with roommates for a few years or getting a side gig so that you can put more money into savings for a down payment. You can also funnel all of your gifts and bonuses into this fund to help you reach your savings goals more quickly.
2. Find a Property With a Rental
Another option is to look for a property that will allow you to rent out a portion of it to help cover the mortgage. If you live in a high cost of living area, you may be able to rent it out for enough to cover a good portion of your mortgage.
If you decide on this option, you should have a few months of your mortgage payments saved up as a sort of emergency fund so you can cover the time between renters and any repairs that you may need to take on.
3. Look in Other Areas
Another option to help you save on a home is to consider looking in other geographic areas. If you live in an expensive city, there are usually more affordable options if you are willing to commute a bit further.
Another option is to consider looking for a job in an area with a lower cost of living so that you can find a home that you like. You may be surprised at just how much a smaller city – or a less expensive one – can still offer.
4. Consider a Fixer Upper
If you're having trouble finding a home you can afford in your area, consider a home that needs to be fixed up. The key is to find one that you can live in while you renovate it. You'll also need some money up front to fund the renovations.
If you are comfortable doing the work yourself, you can put in sweat equity and quickly raise the property value of your new home. It is important that you make sure everything is up to code, and you may want to still pay for an electrician and a plumber since these issues can affect the overall safety of your home.
5. Apply for Home Buyer’s Assistance Programs
There are a number of national and local home buyer’s assistant programs that can help you qualify for a mortgage, especially if you are a first-time home buyer. HUD is a good place to start and the USDA also has a program.
Many states and counties also have assistance programs that you can use to help with a down payment or closing costs. Start by looking locally and expand to a nationwide search. Depending on your circumstances, you may also want to consider Habitat for Humanity.
If you are worried that you will not qualify for a mortgage due to a low credit score, you may want to look into an option that will allow you to rent-to-own your home. It is important to read all of the fine print when you do this and go through a home inspection before you move in.
It should clearly state what you are responsible for repair wise and what happens if you choose to move out. While this can be a good option, you'll need to make sure you are legally protected.
7. Alternative Loans
You may also want to consider alternative loan options that are available. There are more traditional options like an FHA or Veterans’ Home loan. These are straightforward and may help if you do not have a down payment or a lower credit score.
There are also housing co-ops that can help you finance a home. However, these co-ops also claim a portion of the equity of the home and you must offer to sell the home to them if you decide to move. Again you should carefully read the fine print before signing on the dotted line.
Updated by Rachel Morgan Cautero.