Many people shopping for their first home are on a budget, so they are searching for a starter home. What do you do if you are having a hard time finding one in your budget, even when you are searching in geographical areas and neighobrhoods where homes are considered affordable? Here are a few ideas.
1. Look at townhouses and condos
If you have only looked at detached single-family homes so far, it may be time to broaden your search to other property types, like townhouses and condos. These are often more affordable. Just make sure you are accounting for the condo fees when you do your calculations. You should also research the condo’s history so you can find out if it is well-maintained, and how its value has changed over the years.
What about manufactured homes? It is important to be aware that manufactured homes do not gain in value like other types of homes. In fact, they depreciate. So, you generally should avoid making a manufactured home your first choice if you can afford something that can actually increase in value.
2. Think about a rural home
Another idea is to think about purchasing a rural home. The benefit of doing this from a financial standpoint is that you may be able to qualify for a USDA mortgage. Features of a USDA mortgage include zero own payment, flexible qualification requirements, fixed interest rates, capped closing costs, and discounted mortgage insurance premiums.
Keep in mind that the USDA home loan program is income-based. To qualify, you cannot exceed the maximum income threshold. For people shopping for affordable homes though, there is a good chance many will fall into the allowable bracket.
Also, do not assume that you have to be out in the middle of nowhere to qualify for a USDA mortgage. The home you want to buy has to be in a USDA rural zone. But how the USDA defines rural zones is broader than many borrowers realize. So, it is worth looking up the address to see if it falls within a zone.
3. Be willing to compromise on square footage
When you go into the home shopping process, you might have a particular square footage and number of rooms in mind. But you might find a more affordable first home if you are willing to be flexible with the square footage.
How much square footage do you need to live comfortably? It could be less than you think. Many people who are shopping for a home today will end up moving into smaller homes than they grew up in as children. If you have a default image in your mind of your childhood home, you may need to deliberately set it aside, and ask yourself what you can get by with.
You can adjust quite quickly to less space, especially if you do not have kids yet, or your kids are still young. In 1950, the average home size was under 1,000 square feet. Remember, that was the white picket fence era that many Americans associate with idyllic suburban nostalgia. You really can live a nice life without a huge house.
What About Fixer-Uppers?
Your first thought when you are considering clever ways to afford more home might turn to fixer-uppers. If you are reasonably handy, and/or you have good reason to think you can budget some repairs, or upgrades, this can make sense.
Before you rush into buying a fixer-upper though, here are some important considerations.
- Check carefully into what needs repairs. A home that merely has some cosmetic flaws can be a great deal. But if there are significant issues with the foundation, roof, plumbing, electrical system, or HVAC, those issues may cost much more to fix than you expect. Mold and water damage can also be quite extensive and expensive in some scenarios.
- Do a thorough assessment of your budget, both in terms of money and time. Following a home inspection, try to estimate how much you will spend on fixing up the home. Then, add around a 20% to 30% buffer on top of that, as it is easy to underestimate fixer upper costs. Only if you still believe you can afford the home after that should you consider moving forward.
- Find out whether any of the repairs needed will require you to spend time in some other temporary accommodations, and if so, for how long. Think about any other possible disruptions to your life as well from the repairs you are expecting.
- You should also think about the resale value of the home. This is especially important if you don’t actually plan to make all the repairs the home needs, and just wants to live there briefly before moving out again. Will it be difficult to resell the home? Could you end up taking a loss? Just because you are willing to settle for the home now does not guarantee someone else will be when you are ready to leave it.
After you have thought through everything listed above, you should get a better feel for whether a particular fixer upper is truly a good deal, or whether it is actually a more expensive home than it appears.
Buy a Home in California
Even if you have a tight budget, you may be able to find a comfortable home within your means by thinking outside the box. Ready to shop for your first home? Granite West Funding is based in Oakhurst, and can help you buy a home in California. To get started, please give us a call at (559) 540-2275 to schedule your mortgage consultation.
