Affording the Unaffordable: How to Get the Home of Your Dreams

Affording the Unaffordable: How to Get the Home of Your Dreams

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The American Dream

The Great American Dream, as some call it, is affording a home of your own. These days, many home buyers want something more than a small abode — they are looking for a castle or at least what passes for one in some upscale neighborhoods. Clearly, for some people, even affording a modest home is beyond their reach or at least they think that it is. Please read on and we’ll take a look at seven home affordability tips that can make buying a home a dream come true.

7 Tips to Affording Your New Home

1. Start Accumulating Your Treasure Chest — “Buy a home with no money down!” On the surface, that statement sounds like a terrific idea but for the vast majority of people buying a home with no money down is unrealistic. 100% financing is available in some cases, but when it comes to buying new construction or a home in a decent neighborhood, your mortgage broker will want you to come up with at least 5% of the down payment.

For a $300,000 home, that means you will need at least $15,000 for a down payment plus closing costs. In order to secure the best rate on your loan, a higher down payment will be required — 20% or more if you are to avoid the additional expense of private mortgage insurance (PMI). The sooner you start saving, the closer you will be to buying a home.

2. Study Your Home Financing Options — Unless you have enough money to pay cash for your new home, you will have to finance the purchase through a loan. Familiarizing yourself with lending terminology such as fixed rate mortgages, variable or adjustable rate loans, no-interest financing, hybrid loans, balloon mortgages, and the rest will help you determine the best financing option before buying a home.

3. Keep An Eye On Interest Rates — For most of the past decade, interest rates have flirted with historically low levels. These low rates have allowed countless numbers of people to afford a home because their monthly payments were within reach. Rates have risen, but they are still below historical averages. Should rates start to trend higher, consider moving your home buy decision up to avoid paying higher borrowing costs later on.

4. Clean Up Your Credit — Obtain copies of your credit reports and credit scores to learn where you stand today and what you must do now to improve your creditworthiness. The better your credit standing, the more likely you’ll be approved for a lower rate loan. You could save thousands of dollars by fixing errors and problems associated with your credit history.

5. Get Out of Debt — If possible, pay off all of your debt. At the very least bring your debt down to a reasonable amount. Your debt added to your expenses and weighed against your income will determine just how much money a lender will give to you. If you want a bigger home, then you must demonstrate your ability to manage the increased debt level.

6. Determine What You Can Afford — Although lenders base their loan amounts to you on what they determine you can afford, your ability to make payments could be impacted by other expenses. Those annual exotic vacations and seasonal shopping sprees may no longer be affordable with the home you have in mind. If you cannot cut out certain extravagances, then buying a home below your means is the only way to manage your lifestyle.

7. Understand the Mortgage Process — Once you have your down payment and closing costs ready, your credit history cleaned up and your debt under control, then you have one more step to take before you buy a home: get pre-qualified for a mortgage! Yes, you’ve studied your financing options and you know what type of loan you want, the amount, and the terms. One mistake many home buyers make is to shop for a home without being pre-qualified for a loan. In a tight market with multiple offers, guess which home buyers will catch the attention of the seller? The ones who are mortgage ready! No, you don’t have to have the loan signed, sealed and delivered, but having a letter from your mortgage broker stating that they will lend to you a certain amount of money will help you seal the deal.

You Can Get Started Today

You can take the first steps toward buying a home by examining your financial picture today. You may already have money available to make a purchase by borrowing money from your retirement fund and/or asking a family member to gift you some money. Learn all about home purchase financing today and you’ll be better prepared in the days ahead to find and afford the home of your dreams.

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