How To Afford A House When You’re Broke

afford a houseMany Americans are starting to feel as if they will never be able to afford a house, especially in areas like San Francisco, New York, and even Miami.

While many people choose to rent instead, you can still afford a house when you're broke. Here are a few steps to take if you want to own your own home.

Weigh Your Options

If you live in an area that buying a house is cheaper than renting (even factoring in insurance and repairs), it may be your best option to buy a home instead of rent. When trying to afford a house when you're broke, you may think that moving is expensive, but it doesn't have to be.

Some expenses may come up in your first few months of owning a home, but that is to be expected. Think about it this way: If you typically rent for $1,500 a month and you buy a home that only costs $800 a month, you are already saving $700 every single month. If something breaks down, and it costs $500 to fix, you still get ahead by $200 by having your own home.

Now, owning a home isn't always cheaper, so it's best to weigh your options. However, in many areas, including my own, owning a home tends to fare better than renting.

Look Into Assistance to Afford a House

Every state has home buying programs that can help you afford a house when you're broke. While the assistance varies from state to state, it's still worth it to look into what yours offers. Some will help you secure a loan as a first-time home buyer, even if you are low-income.

Some states even offer grants to move into less desirable areas or moving into more deserted places. It's best to look into these programs to see what you qualify for, you may be able to get your home for a lot cheaper than you first thought.

Choose The Right Loan

All conventional mortgages require a 20% down payment. But other loans such as VA (military) loans and FHA loans require no money down or as little as 3.5%. If you don't have a 20% down payment, there is still hope to afford a house when you're broke.

In some cases, an FHA loan may not be the best option. With an FHA loan, you will be paying at least .85% of your loan in mortgage insurance every single year. That only goes away when you refinance or:

  1. Have at least 20% of equity in our home; or
  2. Paid at least 20% of mortgage payments

While conventional loans may have higher interest rates, you can avoid PMI fees.

Location Can Make A Difference

If you are looking for a home in an affluent neighborhood, chances are that it's going to cost you. You may have to settle for less or pay hefty fees. Instead, try looking in neighborhoods that have fixer uppers, or are a little more affordable.

This doesn't mean you have to sacrifice your safety, but it does give you a little more flexibility and opportunity to afford a house when you're broke.

Lower Your Loan

Even with the economy and recession, many Americans are still qualifying for loans way above their means. While this may seem like a great thing at first, instead you will be getting a home that you can't afford.

To make sure that you can afford a house when you're broke, try using an online calculator to see what payments would work best for you, and keep your loan in that amount. And remember, you don't have to take all of the money that the bank offers you.

Cut Unnecessary Spending

If you can't afford a 20% down payment on your home, and won't have extra cash in your budget to prepare for emergencies, it's time to cut back on your expenses.

Try living frugally, like making your own food at home vs. going out to eat, or cutting down on expenses like your phone bill. To be able to afford a house when you're broke, you'll have to make a few sacrifices in other areas.

Be Happy With Your New Home

When you are trying to afford a house when you're broke, you may have to make a few sacrifices on your first home. You may not get all that you wanted on your wish list, but that's okay.

Everyone starts somewhere, and you can always get a bigger and better home later down the road. But for now, be satisfied with what you have.

It's not impossible to afford a house when you're broke. It just takes some careful planning, research, and savings. A home is a great thing to have.

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