For many would-be homeowners, the biggest obstacle to homeownership is finding a property that falls within their budget. Those buying a home for the first time are facing various problems when buying a home this year. Here are some of those problems:
Home Shortage
The home shortage won’t just go away. The country now lacks five million homes, which is estimated to grow. This leaves new buyers with fewer homes to choose from, and, as a result, they may be forced to pay more for a home than they hoped.
Competition
With the number of buyers outnumbering sellers, competition is fierce. Buyers must be prepared to move quickly when they find a home they like and be ready to pay more than they had initially planned.
Rising Interest Rates
Interest rates have been rising since the beginning of the year and are expected to continue to grow throughout 2018. This means that buyers will have to pay more each month for their mortgage if they don’t lock in a rate now.
Rising Home Prices
Home prices are reaching their highest values in years. Right now, a home costs around $420,000 on average. This is a serious problem for many first-time homebuyers.
If you’re looking to purchase a home this year but are worried about stretching your finances too thin, don’t despair! There are plenty of ways to make your dream of homeownership a reality without breaking the bank. Here are five tips to help you bought an affordable home in 2020:
Shop around for mortgage rates
One of the most critical factors in determining how much you’ll ultimately pay for your home is the interest rate on your mortgage. By shopping around and comparison-shopping for rates, you can ensure you’re getting the best deal possible. Here’s what you need to look for when shopping for loans:
Interest Rate
The very first thing you need to consider is the interest rate. This is the amount you’ll be paying on top of your principal loan amount and will have the biggest impact on how much you pay each month.
Mortgage Type
There are two main types of mortgages: fixed-rate and adjustable-rate. A fixed-rate mortgage has an interest rate that remains the same. On the other hand, an adjustable-rate mortgage has an interest rate that can change, typically every 5 years. It’s good to get a fixed-rate mortgage when you can.
Loan Term
The loan term is how long you have to repay the borrowed money. The most common loan terms are 30 years and 15 years. Generally, the shorter the loan term, the higher your monthly payments will be, but you’ll pay less interest over the loan. Choosing something around 20 to 30 years is always good as it can be much easier to pay for.
Put down a larger down payment
The size of your down payment will directly impact the amount you’ll need to finance and the interest rate you’ll be offered. If possible, aim to decrease 20% or more of the total purchase price to avoid paying private mortgage insurance (PMI).
Don’t rule out fixer-uppers
A fixer-upper can be a great way to get more bang for your buck. With a little elbow grease (and maybe some professional help), you can turn a run-down property into your perfect home. Just be sure to factor in the cost of repairs when budgeting for your purchase!
Look for government programs
There are numerous government programs available to help purchase a home more affordable. These programs typically offer reduced interest rates or help with down payments and closing costs. Here are some of the best government programs to consider:
Federal Housing Administration (FHA) loans
When it comes to home loans, you can never go wrong with FHA loans. It comes with the benefit of a low down payment, and you can even have someone co-sign the mortgage with you. This option is for you if you’re buying a home for the first time. It has a low down payment and interest rate. It’ll certainly help you out if you want to purchase a home this year.
U.S. Department of Agriculture (USDA) loans
A USDA loan may be right for you if you’re looking to buy a home in a rural area. One of the benefits of this type of loan is that it offers 100% financing, meaning you won’t need a down payment.
Veterans Affairs (VA) loans
You may be eligible for a VA loan if you’re a veteran or active-duty military member. These loans offer competitive interest rates and don’t require a down payment.
Consider a smaller home
Don’t feel like you need to buy the biggest and best home on the market. A smaller home will not only be less expensive upfront but also cheaper to maintain and heat/cool over time. Downsizing can be a great way to save money while still achieving your goal of homeownership!
Purchasing a home is a major financial undertaking, but it doesn’t have to be out of reach. By following these tips, you can find an affordable property that meets all your needs— without busting your budget in the process!
