by Karla Clarke
Dec 15, 2017
Preparing to Buy a Home While Being Broke
So many people are doing it, but how? How is it that anyone is able to afford to purchase a home today? Especially in Los Angeles!
Buying a home can seem unattainable but there are simple and practical approaches you can take to be able to grasp what seems unattainable. The typical steps one takes when purchasing a home are:
1. Strengthen credit score
2. Determine a budget
3. Save a down payment and closing costs
4. Obtain mortgage preapproval
5. Find a house you like
However, if you’re the average American not only do you have bills, credit cards, and school loans, you may already have kids to support. Thus, these simple steps can seem far-fetched. Though there is no magic wand or lamp, there are other ways. Ready for an unconventional approach?
1. Apply for a Federal Housing Administration Loan (FHA)
If your credit score is a 580 or higher, you can qualify for a loan with as low as 3.5% down. If your score is even lower (below 500…no judgment) you may be able to place as little as 10% down. In Los Angeles where the average home price is around $570,000 this could mean as little as $20,000 down versus the standard 20% of $114,000 down. Huge difference!
2. Lower Your Standards
This one may be a bit hard to swallow but it has to be said. If you’re coming out of renting for years you tend to be spoiled. Turnkey units, no maintenance, and amenities, it’s what you’re use to. To get your first home on a tight budget you may need to shift your thinking. Remember it’s your FIRST home. You’re not stuck there for life. You just need to take the next step right now, and to do so sacrifices must be made. So get out of that gated community with the Home Owners Association (HOA) fees, find a median priced neighborhood you can see yourself in for about five years. After five years, upgrade. Simple!
3. Save Some Money
Yes, easier said than done. However, if you really want this, something’s got to give. Just stop for a second and think about the small things you don’t really need. For example: buying a coffee daily, going out on Friday nights, that new phone, or even just reduce a few bills in your home. Here’s another heavy hitter, your tax return. Stop spending it before you even get it. Pretend its not coming and once that surprise cash hits, lock it up. It may not be enough to invest, so just lock it up in a CD if you lack self-discipline. Over the course of a year you can save $10-20 thousand just by doing this.
4. Sweat Equity
Buy a home that needs a little elbow grease. I know this sounds awful, but a home that most may shy away from you can pay less for attain your dream. Then add instant equity by putting in some effort. Now we’re not suggesting you buy a home and change the entire floor plan, just look for something that may just need a fresh coat of paint, new carpets or lighting. The small fixes most buyers can’t look beyond. Open you mind to the possibilities when looking. Then have a little fun with it.
Don’t let the fear of being a property virgin keep you from negotiating. Negotiate everything! Price, closing cost, realtor fees. Don’t be unreasonable but never split the difference. For example, negotiate a reduction in price based on the cost of estimated repairs, negotiate for the seller to cover closing costs, explain your situation to the realtor and see if they will give a discount on fees. Or here’s a good one, locate a home being sold by an investor and work directly with them. Depending on the circumstance they may work with you to avoid all fees and commissions. Nothing beats a failure but a try.
Overall, why be typical when there are other options. Based on the typical steps one would take when purchasing a home, be atypical and take the first step. Find an unconventional way that will work for your situation and don’t be afraid to ask for help. With the right team behind you the unimaginable can become reality, but first you need to takeover today so tomorrow can be yours.