This is a guest post about buying a home on a budget.
Having a home of your own is the American dream and while buying a home is becoming harder, it is still achievable. This starts with knowing what you can afford and then how to find the best opportunity. Granted, this can be tiring but if you want to find your dream home, you need to put in the effort.
With that in mind here is how to get your dream home on a budget. These tips will help you find the best home for you and your family while not breaking the bank.
Money-Saving Tips for Buying a Home
Know the Rules
When it comes to buying a home, there are certain rules you need to follow. Now, read closely as there will be a test later. First, and this is important as the banks will look at this as well, your monthly mortgage payment cannot be more than 28 percent of your gross income.
However, if you want to be safe, then you might want to shoot for 26 or 27 percent of your income as this will give you a bit of breathing room when applying for a loan. Second, your total housing payments should be under 32 percent of your gross income. Lastly, your total debt to income should not be more than 40 percent of your gross income.
Just because you are under these thresholds doesn’t mean that you will qualify for a home mortgage but it’s a good start. As such, you might want to take six months to a year to get your finances in order before starting our search. Doing so will ensure you won’t have any issue later.
One more thing to remember, while this isn’t a rule it is a good way to make sure you can get the money you need for the home of your dreams. Get pre-approved before you start your search. This will give you an idea of a budget that works for you.
Have a Plan
It’s not like you can wake up and find the home of your dreams. Instead, you need to take the time to identify where you will want to raise your family. Now that you know the rules, then you need to put together a plan to find the perfect property.
You will need to know what that budget will buy you in your area. In addition, what are you looking for in a home? Do you want a large yard, a stunning master bedroom, or a large kitchen? Having a list of the amenities you are looking for will not only make it easier to organize your thoughts but will make it easier to let a real estate agent help you.
Besides having a plan for what you want, you will also need to have a plan to help pay for the home. Not just for the mortgage but also the down payment and closing costs. Be prepared as sometimes the costs to finish buying your home can be as much as 10 percent of the price of the home.
While some of this money will come from savings, you might need to enlist the help of friends and family to get you over the hump. If you do need to take on outside money, then you need to remember that this money will need to be “aged” in your account. This means that you will have to hold it in your account for three months or longer. As such, you will need to be prepared to ensure that your bank balance remains constant.
Get a Mortgage
Let’s face it, few of us can pay cash for a house. As such, you’ll need to get a mortgage. Keep in mind this is different than just getting prequalified for a loan. Getting a mortgage means that you will need to get approved by a bank.
But here comes the tricky part as most people will put an offer on a home before they have been approved for the loan. There are a couple of reasons for this including competition – especially in a seller’s market – and the fact that the bank will need to inspect the home before approving the mortgage.
Depending on the bank’s process you might not be able to get the home approved before the closing date. According to hard money lenders in NY, Gauntlet Funding, they have the “funds to close the deal on your dream property” when banks won’t close in time.
Just keep in mind that if you go this route, you will need to refinance your mortgage within the first six months. While this might add to extra cost, it will help you to close your dream home in a hurry while remaining in your budget.