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Buying a home on a tight budget

It's no secret that it's getting tougher to buy a home, especially if you're on a limited budget. According to the National Association of Realtors (NAR), you'd need to have earned $56,832 in order to buy a median-priced home in the U.S. in 2021, and that's even before you consider how widely house prices vary around the country.

If you're not earning that much—and you're definitely not alone—it's still possible to buy a home. It just might take a bit more time and work. Here's what you can do to turn your homeownership dreams into reality:


1. Start a budget

People often roll their eyes at this suggestion and then later find out that starting a budget really works.

Use resources available in online banking or other apps to help monitor and track where your money is going. There are many set-it-and-forget-it programs that let you set budget categories and give you warnings when you're close to overspending.

The reason budgeting works so well is because you're more proactive in telling your money where to go, rather than wondering where it went at the end of the month.


2. Save regularly and pay yourself first

Speaking of budgets, make sure you set up a budget category to save for your house down payment each month. When you go through the process of setting up your budget, you'll see how much you can afford to save.

Better yet, set up automatic deposits from your checking account into your savings account for right after you get paid. You're less likely to notice it then, and by paying yourself first, you'll make sure you are able to save.


3. Earn extra income (if you can)

Not everyone can just decide to earn extra money. But if you can boost your income, even by just a little bit, it can help make it easier to afford a home. You can only cut so many expenses in your life, after all.

You can consider getting a second part-time job if you have the option. But some people find that even a small side hustle, such as freelancing after you put your kids to bed or driving for Uber, is enough to help them to start saving up for a down payment.


4. Expand your home search area 

Home prices vary wildly, from town to town and county to county. Not everyone is able or willing to move to the next town or county, but if you can, you might buy a home sooner if you move to a less expensive area.


5. Get a mortgage tax credit certificate

There are programs to help make homeownership more affordable for those on a low or moderate income. One of the lesser-known programs is the mortgage tax credit certificate, sometimes shortened to MCC.

This is a certificate that your lender gives you. When you file your taxes, this certificate lets you claim a tax credit for a portion of your mortgage interest, up to $2,000. Any remaining mortgage interest can still be claimed as a regular itemized deduction. It won't help you right away, but it can make things more affordable for you in the long run.


6. Look into down payment assistance programs

If you're a first-time homebuyer, there are a lot of people who want to help you get into a home. In fact, many programs around the country provide help for people saving for a down payment.

These can take the form of affordable loans (some with forgiveness options) or even grants of free money.


7. Explore all your loan options

There are different types of mortgage programs, including options for people who don't have much saved or who have credit challenges. For example, FHA loans require as little as 3% down on a home, and you don't need perfect credit to qualify. VA loans for veterans and active-duty service members don't require any down payment at all.

While it's generally best to put down as much as you can afford to buy a home, you should know that there are options out there if you're unable to save a large down payment.

If you're interested in buying a home but don't think you can qualify, it's a good idea to reach out to a reputable mortgage loan officer who can help you navigate your options and help you get in tip-top shape to buy a home, even if you’re on a limited budget.


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