If you feel that buying a house has become less affordable in recent years, it’s not your imagination. A Harvard University study found that nearly 40 million Americans live in housing they can’t afford, meaning they’re spending more than 30 percent of their income on the place they own or rent. That represents a 146 percent increase over the past 16 years.
As the Harvard study found, home prices have gone up — by as much as 50 percent in some areas — but wages haven’t maintained the same pace. That means millions of Americans who dream of owning a home have felt themselves hampered by not just student debt and credit card debt but also by their reduced buying power.
The trick, then, is to find ways to make buying a house more affordable — and most of these have nothing to do with your income. Over the past six months I purchased a new home and then sold my old home. I’ve learned a lot about how to find homes online. In todays tech age buying a house is possible and finding the right deal is possible. Here is how I did it.
- Cut the commission.
Commission on real estate transactions sits at just over 5 percent nationwide. That’s a big chunk of change to fork over right as you’re moving into a new home that may need repairs or furnishing. Some people avoid commission by working with a friend who’s a realtor — and willing to give up his or her agent or broker fees.
Another option is to use a service like Beycome, which removes the middleman (aka the realtor) and allows buyers and sellers to interact directly. The platform digitizes the standard FSBO transaction by helping with listings, scheduling home tours, and finalizing the deal with a contract.
- Boost your credit score.
It’s no secret that a higher credit score results in a lower interest rate. Boosting your credit score from “fair” to “good,” for example, could make mortgage payments feasible — and improving your credit score could also help you qualify for loans or lines of credit for things you may want to do to the house in the future, such as replace furniture or build an addition.
To raise your score, pay all your bills on time, keep your credit card balances low, and avoid opening up new lines of credit when possible — every “hard pull” on your credit affects your score.
- Look for the best numbers.
Don’t settle for the first loan rate you’re given — shop around to see which lender can give you the lowest rate. Some people successfully counter one lender’s offer with another’s to get the rate they want with the lender they want. The other number you can look to lower alongside your interest rate is your down payment; determine whether the homes you’re looking at qualify for special programs. Some of these ask for down payments as low as 3 percent; the USDA Rural Development Program, VA loans, and the Navy Federal Credit Union all offer zero-payment loans.
- Invest in DIY.
Fixer-upper homes and do-it-yourself projects haven’t just fueled HGTV; they’ve also helped lots of new homeowners quench their thirst for a home. Some repairs or renovations are, without a doubt, costly — replacing a roof or overhauling an entire kitchen can represent a big upfront cost.
But many houses on the market need TLC — say, a new coat of paint — or simply need to be tweaked in stages to meet a new owner’s preferences. Being your own general contractor means you get to spend money simply on materials, not on labor or mark-ups, meaning more money stays in your pocket. Each improvement will also result in more equity for you, so your hard work will result in real money earned down the road.
- Protect your investment.
One price that sometimes surprises new homeowners is the cost of home insurance. To keep the cost of a homeowner policy low, talk to your insurance company about bundling your home and car policies for a reduced rate.
You can also protect your home investment by looking for credits beyond the purchase price. A common credit is one awarded for overdue repairs, but some people are also able to earn credits for closing costs or home warranties. All of these options can reduce the overall cost of purchasing the home.
- Rein in your expectations.
If you’ve saved up for a home for years, you likely have your heart set on something very specific: Victorian style, lots of turrets, window seats built in for every kid, original hardwood floors. But the term “starter home” exists for a reason — most people need to “trade up” to a bigger home down the line.
It’s important to spend less than you can truly afford to cushion yourself against a market crash and to be able to save for the other priorities you might have, like retirement or college. Look for what meets your needs and makes you happy — while that 1990s ranch home may look a bit cookie-cutter compared to your beloved Victorians, if it’s in a good school district, close to work, and big enough for your family, it may be the smartest choice.
Buying a house may be less affordable than it once was, but that doesn’t mean it’s impossible. By looking for ways that you can increase the spending power of the money and credit you currently have, you can improve your chances of buying a house you can truly afford — and be happy to call home.