If you're looking to buy a home, you're no doubt aware that the more of a down payment you're able to make and the higher a mortgage loan you qualify for, the easier a process it'll be. But that doesn't mean you can't buy a home if funds are limited and you're only approved to borrow so much. Here's how to become a homeowner even when you don't have a lot of financial flexibility.
1. Set your priorities
It's easier to find a home for less when you narrow down the features that are most important to you. Maybe you're set on an open floor plan, or you really want a large backyard for your children to play in. Identifying the top three or four items that count the most in your book will help you focus your search, especially when you're dealing with limited funds.
2. Be willing to make some compromises
The lower your homebuying budget, the more compromises you'll likely need to make. But know the difference between compromises you can correct later on, and those that are permanent.
For example, you might settle for an outdated kitchen that needs new cabinets and countertops down the line, but is functional at present. This way, you can save for that renovation and do it when you’re ready. On the other hand, if you're looking for a four-bedroom home because you have plans to expand your family, and you buy a small, two-bedroom bungalow, that's something you may need to live with for as long as you own that property.
3. Get ready for some handiwork
Buying a home that needs work will help you stretch your dollars further. This especially holds true for a property that's in desperate need of a cosmetic overhaul, but is otherwise structurally sound. For example, it's easy and relatively inexpensive to replace carpets, paint walls, and update rusted bathroom fixtures. It's a lot harder to re-run wires to get that space up to code, or to install new piping or ductwork.
One seemingly harmless issue to be wary of, however, is mold damage. Mold isn’t just unsightly; it can cause health issues and be costly to remediate, so think twice before taking it on.
4. Consider a short sale or foreclosure
Buying a short sale or foreclosure could help you snag a great property at an affordable price. With a short sale, a lender agrees to let a homeowner unload a property despite being underwater on a mortgage. The lender allows that property to get sold and then accepts whatever proceeds result from that sale as its mortgage payoff. But lenders in these situations want those homes sold quickly, so they'll often agree to a lower price.
A foreclosure, meanwhile, is a property that a bank has reclaimed once its owner has failed to keep up with his or her mortgage payments. Like short sales, banks tend to want to unload foreclosures quickly, so you'll often snag a great deal on your purchase price.
Of course, there are drawbacks to buying either type of property. For example, in either scenario, you're generally purchasing a home as-is, which means that if any glaring issues with the property become evident, they're on you to address. Short sales and foreclosures can also subject you to bidding wars you may not want to take part in. Still, in many cases, the savings at hand outweigh the hassle factor.
And there you have it: It’s possible to buy a great home even when you’re dealing with a limited budget. You just need to establish your priorities, stay flexible, put in some sweat equity, and be willing to explore non-traditional options for buying a place to call your own.