5 Tricks to Score Your Dream Home for Less

Many first-time home buyers purchase a starter home before growing into their forever home. This is a good way to get experience as a homeowner and build equity without spending too much on a home to start with. Once you’ve decided it’s time to move on, you may be looking into something more permanent. But where do you start? Keep reading to learn how you can afford your dream home in the future.

How To Get Your Dream Home On A Budget 

While getting your dream home may not happen overnight, there are plenty of things you can do to prepare for a dream home in the future. Whether you’re renting, already own a home or are planning on buying a new home, it’s always a good time to set your future self up for success. Here are some strategies to get you ready to buy your dream home.

1. Calculate How Much Equity You Have

Home equity is the difference between your home’s value and the remaining balance on your mortgage. Let’s say your home is worth $250,000 and the remaining mortgage balance that you still owe your lender is $150,000. That means you currently hold $100,000 in equity in your residence.

It’s important to note, though, home equity isn’t always represented as a dollar-to-dollar amount. Certain additional factors can influence your home equity amount, including your down payment, loan balance, and the home’s overall market value. Home improvement projects can also increase your home equity.

2. Establish Your Dream Home Budget 

There are many factors to think about when establishing a budget for your new home. The true cost of buying a house is more than just the sale price. From upfront expenses like a down payment and closing costs to the ongoing costs of homeownership, it’s important that you’re able to create a budget that will take every fee into consideration. Your budget will need to include:

• Down payment: A down payment is a percentage of the home’s purchase price that a buyer pays upfront at the time of closing. This reduces the amount that you’ll need to borrow from your mortgage lender. On average, home buyers make a down payment of 6% when purchasing their first home. And remember, you don’t always need to put 20% down on a house. There are many ways you can purchase a home with a lower down payment.
• Earnest money: Earnest money is a deposit submitted by a prospective home buyer to demonstrate their commitment to buying a house. Earnest money deposits typically range from 1% – 3% of the home purchase price and usually go toward a buyer’s down payment or closing costs.
• Closing costs: Closing costs are fees that both buyers and sellers pay prior to finishing a real estate transaction. Closing costs are made up of smaller fees such as appraisal fees, title insurance and origination fees, and typically range from 3% – 6% of the loan amount.
• Moving expenses: Moving costs will vary depending on the distance, the size of your home, the number of belongings you have and more. For instance, a long-distance move will probably be more expensive than a local move. How much you pay to actually move your belongings will depend on whether you hire a moving company or do it yourself.
• Upgrades or repairs: If you’re buying a house, you’ll need to think about the price of upgrades and repairs. Sometimes you might be able to negotiate with the seller if certain things need immediate repairs, but a lot of times, future upgrades and repairs will fall on you. You’ll also need to keep in mind any repairs or upgrades you may need to do to your current house or property before you sell and move.

To get started on a budget, you can use our home affordability calculator to determine how much house you can afford.

3. Get Preapproved

A mortgage preapproval is when a lender determines and tentatively approves the amount you’ll be able to afford when you’re looking to buy a home. The lender determines the amount by reviewing your credit report, income, assets and debts.

While a mortgage preapproval isn’t a guarantee that your loan will end up closing, having a preapproval shows sellers that you have the financial resources to follow through with purchasing the home.

4. Pay Down Debts

In order to be approved for the mortgage on your dream home, it’s a good idea to lower any debt you may have and make sure your debt-to-income ratio is as low as possible. Debt-to-income ratio compares your total monthly debt to your gross monthly income. You want your monthly debt to be much lower than your monthly income.

Monthly debt can include:

• Mortgage payments
• Credit card payments
• Personal loan payments
• Auto loan payments
• Student loan payments
• Child support payments

5. Increase Your Savings

In addition to paying down debt, increasing your savings will also help when it comes time to buy your dream house. There are lots of things you can do to increase your savings, but it starts with being aware and learning how you can save more. You might decide to cut out some luxuries that aren’t necessary for a while, take on another job for extra income or maximize your savings by opening a savings account strictly for your mortgage.

6. Start A Side Hustle

Starting another job or side hustle is a great way to decrease debt and increase savings. If you already work full time, you may want to consider something else part time. Some examples might include freelance writing, driving for a food or grocery delivery service, tutoring or landscaping. You could set a goal to keep your side hustle money separate so you don’t end up spending it on other things.

7. Find The Right Real Estate Agent

A good real estate agent can make a big impact on a buyer’s house hunt. Look for an agent with a high level of expertise in areas like market conditions, access to listings and home values. Be sure to shop around and pay attention to reviews. It might be tempting to just choose a real estate agent because someone has recommended them but do some research before you make your decision.

8. Be Patient 

House hunting can be frustrating, especially depending on the current market. It may take weeks, months or even years for you to find your dream home. Be patient and keep at it, because eventually, it will work out!

Financing Options To Buy Your Dream Home

Maybe you’ve already found your dream home. If so, congratulations! There are many different financing options for buying a house, including:

• Different loan types: There are many different loan types to choose from. It’s important to consider them all. There are conventional loans, government-issued loans, FHA loans and many more. Talk with a lender or real estate agent to learn more about which type might work best for you.
• Rent-to-own houses: Rent-to-own, also known as lease option or lease purchase, is a housing arrangement that allows potential buyers to rent a property with the option to buy it later. This is a good option if you’re having trouble being approved for a mortgage and can be a way for potential home buyers to lock in a specific home while giving themselves time to prepare for homeownership.
• House hacking: House hacking means finding ways to generate income from your home. Traditionally, house hacking meant buying a multifamily property, living in one unit and renting out the others so that the tenants pay the owner’s mortgage, and the owner builds equity while maintaining the property. Today, it’s not uncommon for homeowners to just rent out one room or find housemates.

The Bottom Line

Buying your dream home will take some work, but with enough planning, it’s definitely possible. If you haven’t already started planning, this may be a good time to start thinking about what  your dream home would look like. Where would it be located? Are there specific amenities you want or need? To create a budget, get started on the application process today to see what you qualify for.