Published On: Mon, Jan 7th, 2019

How to Buy a House When You Don’t Have Much Saved

If you’ve been renting all your life, you might have this notion that buying a home is only for the rich and successful. It’s not for people operating on a tight budget.

However, this is a myth that’s rapidly disappearing with the improving economy. Home prices might not be decreasing where you live, but there are options for buying a home, even for the tightest budget. Here’s what you need to know:

photo/ mohamed Hassan

Adjust Your Expectations

Perhaps one of the reasons that buying a home has always seemed like such an elusive prospect for you is that you’ve been setting your expectations too high. Sometimes, our wants blind us to what we actually need. If you want homeownership, then you need to make sacrifices on a few things.

One of the top Houston home rental agencies, Green Residential, recommends going into your home search and fully distinguishing between needs and wants.

“A brick house is not a need; it’s a want,” they write in a blog post. “Having an apartment on a particular street downtown is a want, not a need. Having a big backyard probably isn’t a need, either. By stripping back your expectations and understanding that this isn’t your ‘forever’ home, you’ll be able to make a much more moderate purchase.”

Know What You Can Afford

Another essential component of setting realistic expectations is only looking at houses that you can afford. If you spend the first month of house-hunting looking at $300,000 homes, only to realize that your max budget is $175,000, you’ll be sorely disappointed with the finished product.

Renowned financial expert, Dave Ramsey, says to start by adding up your income and monthly household expenses. Compare that with the cost of home ownership, including property taxes, insurance, private mortgage insurance, and interest. He suggests trying to keep your house payment at 25 percent or less of your monthly income.

If things don’t balance out, Ramsey suggests you “aim for a more conservative home payment and tighten the purse strings in a few other areas.” You can always eat out less or adjust some of your other budget items to make your house payment easier to manage.

Stop Comparing Your Situation to Others

Many tight-budgeted homeowners want to buy a bigger, more updated house than they can afford because they want to keep up with their friends and family. However, your life is not their life, and living based on comparisons will lead to negative repercussions, many of which can cause serious financial problems.

Valencia Higuera of MoneyCrashers recommends focusing on the positives of your budget rather than the negatives. “Rather than obsessing over the fact that your friend bought a house with an outdoor kitchen, offer your congratulations, and then get excited about what your $250,000 budget can do for you,” she suggests. “Maybe you’ll have four bedrooms instead of two, or you’ll have a gas oven instead of an electric one. Then, think about the ways you’ll benefit from staying within your budget, such as maintaining a healthy vacation or retirement fund, or starting a college education fund for your kids.”

This positive spin will have you falling in love with your house, no matter the price tag!

Use Government Loan Programs

Unless you’ve been saving most of your life for a home, your tight budget will probably prevent you from buying a home using conventional lending, which requires a 20 percent down payment ($40,000 on a $200,000 home).

Thankfully, the government and a few other organizations have come up with home loan programs that make it easier for you to buy a house without a lot of savings. For example, a Federal Housing Administration (FHA) loan requires a down payment of just 3.5 percent.

So, if you’re buying a home that’s $200,000, you’ll need just $7,000 for your down payment. This makes it infinitely easier to save for a home when you’re strapped for cash.

These programs often have other benefits as well, like lower credit score requirements and a higher debt-to-income ratio allowance.

As you can see, there are options for buying a home for those without a lot of disposable income. You have to live somewhere, so you might as well put your monthly housing payment towards building equity rather than padding your landlord’s pocket.

Author: Anna Johansson

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