Buying (not renting!) a house on a budget

Our very first home!

I graduated from college in December of 2018 and by April if 2019, I was a homeowner!

Granted, I live in an area that has a relatively cheap housing market compared to other places in the country, but regardless, I did it!

Before my husband and I bought our home, we were renting a SUPER small two-bedroom apartment. It definitely didn’t have enough room for us, let alone our two cats AND all of our stuff!

Even though Logan was still in school, I knew we needed out of this renting B.S., and we needed out FAST. It was nothing but a money pit! We were paying $900/month (plus electric) to live in what was basically an upscale cubicle.

So, desperate to find a house, I turned to Trulia.com. That’s where I made my first mistake.

If you’re serious about buying, contact a local real estate agent.

I typed in the area I was looking at and was IMMEDIATELY hit with over 100 listings! Since this was my first time looking at houses, I was definitely feeling overwhelmed.

Plus, over half of the houses were WAY out of my price range! Thankfully, most real estate sites have filters where you can select your prince range, square footage, etc. I selected my price range to be as low as possible, but was STILL hit with an overwhelming number of listings.

I scrolled through the houses, “favoriting” the ones I liked. But, you have to remember, the people that list these homes are listing them for one reason: TO SELL THEM. Again, I was feeling overwhelmed with vocabulary and technical talk that I just wasn’t used to. How was I supposed to know if gas or electric heating was better? How was I supposed to know what “knob and tube” electric was? My head was spinning.

Thankfully around the time I was looking for houses, I had a great boss that suggested I use a local real estate agent. Not only do these agents know the housing market, but they can also tell you which neighborhoods are good, what’s wrong with the house, etc. Plus, my agent actually made me my own website where he added homes that ONLY fit my criteria. He answered any questions I had honestly, and he REALLY narrowed down the search.

Have all of your paperwork ready.

This. This is what f*cked me up the most! Before you even look at a house, get all of your tax paperwork, proof of income, driver’s license, social security card, proof of employment, and ANY paperwork relating to money and your identity together! I can’t tell you how many times I had to frantically rip my apartment apart looking for my freakin’ 1098-T tax form from my university or my credit card statements from months ago.

Once you get all of that stuff together (your agent will tell you exactly what you need) go ahead and scan all of it and make a nice, presentable PDF document of it. I personally don’t have a scanner, so I used the FREE app called “iScanner” on my iPad. It worked wonderfully!

Getting all of this stuff together will save you a lot of time in the long run.

CHILL on the purchases!

Seriously, chill on debit/credit card purchases! Do this immediately! Perhaps the biggest thing that lenders look at is your credit score. If you have a high debt-to-income ratio, chances are, you’ll be turned down for a mortgage.

What exactly is debt-to-income ratio?

It’s basically the ratio between the amount of debt you’re in to the amount of money that you make. You can calculate your ratio by dividing your monthly expenses by your monthly gross income. Most lenders won’t accept a ratio of more than 50 percent.

Honestly, this was the hardest step for me! I LOVE shopping. And I LOVE my venti iced-vanilla latte every morning. But for a few months, I had to settle for making coffee at home. Mortgage lenders look at both credit and debit accounts, so the less you spend during this time, the better. They want to see fiscally-responsible behavior, and racking up $200 worth of transactions at Starbucks is definitely the OPPOSITE of that!

Remember, if your buying a house with someone else, they need to do the same. My husband was not happy during this period since he couldn’t buy any expensive guns or gun parts (his passion.) but I promise, it’ll be worth it in the end!

Save money for a down payment.

You’ve probably heard that you need at LEAST 20 percent of the home’s price for a dwnpayment.

I’m going to tell you now, this isn’t the case! We paid around 5 percent down for our house. Instead of taking a conventional home loan, we took an FHA (Federal Housing Administration) loan, which accepts lower down payments and lower credit scores.

The catch?

We had to take an online class and exam about home ownership. But don’t worry, it was super easy! We also took out a 30-year loan versus a 15-year loan. Sure, it’ll take us longer to pay back, but we can always refinance in the future if we need to.

As for actually saving…

We cut back on eating out and driving. That way, we saved money on the two things we do the most: driving and eating. We also sold things that we had lying around (like my Apple Watch) that we decided were less important than having a house! You can always reach out to financial advisors in your area, too. They’ll help you budget and stay on track for saving for that down payment.

DON’T use the mortgage calculators on realty sites.

Oh, man. I wish I would’ve known this sooner.

A lot of times on sites like Trulia.com and Realtor.com, there’s a “calculate my monthly payments” button. DON’T CLICK IT!

These buttons bring you to a third-party site that ask for personal information (like your social security number) where they then dig into your credit and everything to determine if you’re able to get a loan. You will eventually have to provide lenders with this information, but remember, multiple credit checks bring down your credit score!

My advice? Get a loan through a trusted bank or financial institution. I personally bank with Flagstar, so getting a loan through them was easy-peazy! They already had all of my information on file, so it was quick and efficient.

So, basically…

Save money, limit your loan preapprovals, and keep your credit score up! It’s pretty simple. Cutting back on expenses might seem hard, so I suggest starting an Excel spreadsheet to list your daily spending.

It’ll help you figure out what you can save on, as well as what your debt-to-income ratio is.

Thanks for reading! My next post will regard moving into and cleaning your new house in a budget.

Take care!

-Cali

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