How to Score Your First Home on a Budget: Tips for First-Time Buyers

Buying your first home is both thrilling and challenging. It can feel like an adventure filled with hopes and dreams, but the costs can often seem frightening. The good news is, with some smart planning and resourcefulness, you can secure a home without draining your bank account. Let’s explore practical tips that can help you stay within budget while finding the perfect space for you.

Understand Your Budget

Understanding your budget is the first step towards homeownership. Start by examining your financial health: consider your full income, regular expenses, and savings before house hunting.

Using a home affordability calculator can give you a clearer picture of how much home you can realistically afford. These calculators take into account your income, down payment, debt-to-income ratio, and current interest rates. For example, if you earn $70,000 annually and have minimal debt, you might afford a home priced around $280,000, assuming a 20% down payment.

Don't forget to factor in additional costs such as closing costs (around 2% to 5% of the loan amount), property taxes (which average 1.1% of the home value in the U.S.), and homeowners insurance. A well-defined budget sets a strong foundation for your home-buying journey.

Save for a Down Payment

Saving for a down payment can feel overwhelming, yet it’s a crucial step.

While many believe you need to save 20% of the home’s price, there are many options with lower requirements. FHA loans start as low as 3.5%, and some conventional loans may require only 3%. If you are looking at a $250,000 home, instead of needing $50,000, you could secure a loan with just $8,750. And if you find a home in a USDA-eligible area, you can score your home with $0 down. Veterans may also benefit from a zero dollar down home purchase through a VA loan.

To simplify your savings, you may considier opening a dedicated down payment account and consider automatic transfers. Even small weekly savings of $50 can accumulate to $2,600 a year, bringing you closer to your goal.

Explore First-Time Homebuyer Programs

Don't overlook the numerous programs designed specifically for first-time buyers.

Local and federal programs can provide invaluable assistance. For instance, some states offer down payment assistance grants that cover as much as 5% of the home purchase price. Research loans backed by the Federal Housing Administration (FHA) and check your state housing finance agency for favorable terms, such as lower interest rates or reduced mortgage insurance.

My trusted lending partners offer lots of options!

Utilizing these programs can substantially lessen your overall costs and facilitate your path to owning a home.

Improve Your Credit Score

Your credit score is key in shaping your mortgage terms.

A score of 740 or higher can qualify you for the best interest rates, which can save you thousands over the life of your loan. For instance, on a 30-year loan of $250,000, a 0.5% interest rate difference could mean paying around $30,000 more over the loan’s term.

If your score needs work, tackle existing debts and ensure you make all payments on time. Regularly check your credit report for errors—up to 25% of reports contain errors that could hurt your score. Fixing those can give you a quick boost.

Find a Real Estate Agent You Trust

Partnering with a reliable real estate agent is immensely beneficial, especially for first-time buyers.

An experienced agent can guide you through the local market and help fine-tune your search. Look for one who specializes in assisting first-time buyers and is familiar with neighborhoods you’re interested in. For instance, if you’re searching for a home in a city like Austin, an agent with local expertise can navigate its competitive market on your behalf.

Additionally, keep in mind that sellers typically pay the agent's commission, so hiring them won't increase your financial strain.

Be Open to Compromise

Flexibility can open doors to great opportunities.

While it’s essential to have a list of must-haves, be prepared to adjust your expectations. For instance, you may prefer a home with a large kitchen, but a smaller space in a desirable neighborhood might be a better fit for your budget.

Consider the overall lifestyle you want. Prioritizing a home close to work or in a reputable school district may outweigh having an extra bedroom or larger yard. This mindset can help you land a home that meets your needs and respects your budget.

I've made a whole dedicated post about it, but the benefits of house-hacking are too big not to mention. Mortgages, taxes, insurance, and repairs costs add up, and you may decide you don't want to pay for all of it yourself. If you're open to compromise, consider house-hacking. To put it brief, you can choose to rent out individual rooms in your house, or another unit in your multi-family or ADU, and use that money to pay your housing costs. Some lenders may even allow you to use the projected rental income as income for your loan approval.

Look for Fixer-Uppers

If you have a knack for home improvement, consider buying a fixer-upper.

These homes often come with lower price tags, allowing you to get into desirable areas without overspending. For example, if a property in good condition sells for $300,000, a similar fixer-upper might be available for $220,000. By investing in renovations, you can turn that property into your dream home over time.

Just be sure to assess the potential repair costs carefully. Budgeting around 10% to 15% of the home's purchase price for renovations can help avoid unpleasant surprises along the way.

Get Pre-Approved for a Mortgage

Before you start shopping for a home, getting pre-approved for a mortgage is essential.

A pre-approval will not only clarify your budget but also signal to sellers that you are a serious buyer. It can give you an edge in negotiations since sellers feel more confident accepting an offer from pre-approved buyers.

Be proactive: shop multiple lenders to compare rates and terms. Even a rate difference of 0.25% can save you thousands over the term of your mortgage.

Consider Different Locations

Expanding your search area can lead to unexpected possibilities.

Looking into neighborhoods that are on the rise can yield promising opportunities at a lower cost. For example, areas that may have seen recent investments in infrastructure or community services can provide long-term value.

Investigate trends in your local market to identify neighborhoods that offer good amenities and growth potential. This strategy increases your chances of finding an affordable home without sacrificing quality of life. Seeking up-and-coming areas can help you get a good price on a home before the neighborhood catches up and raises its value/

Your Path to Homeownership

Purchasing your first home is an achievable dream. With smart planning, diligent research, and a willingness to adapt, you can find a home that feels perfect for you.

Finding the right home and securing the right financing is a feat best suited with the help of a REALTOR. As real estate professionals, we have the best access to and knowledge of the real estate market, so we can guide you through your search and buying process. We also have connections to the best mortgage lenders, attorneys, and other service providers that will be crucial to getting you into your new home.

Don't stumble through the journey of buying your first home alone. As a sworn REALTOR, I am hear to help you every step of the way and make the process as seamless as possible. Don't hesitate to reach out if you have any questions.