The cost of a home has reached an all-time high, but you're already prequalified for a mortgage. You have finally accepted that your dream home in the ideal location is financially out of reach, and you wonder if you will be able to find an affordable home. Here are some tips for house hunting on a budget in a competitive market.
• Consider where you will make concessions to afford a home.
• Avoid following the crowd. Seek out properties that are outdated or aesthetically unappealing to deter other buyers and prevent bidding wars.
Consider purchasing a condo or a small starter home.
• To find a home at an affordable price, be adaptable in terms of location;
• Investigate government programs and alternative listing sources to find customized deals.
Getting Ready to Shop for Houses
Before signing up for that online house-hunting tool, consider how you currently spend your time at home, how long you intend to stay in your new home, and any changes you foresee occurring in the near future. Is this a starter home or a home for life?
In the 100 largest metropolitan areas of the United States, homeowners typically reside in their homes for six to eighteen years. In fast-growing areas, homeowners typically reside in their homes for shorter durations.
You'll likely need to make concessions on some must-have items in order to stick to your budget, so it's essential to consider your highest priorities and the things you will not budge on. For instance, your child may be required to remain within a certain school district. Or you may require a certain number of bedrooms in a single-family home to accommodate the number of children you intend to have. However, you may be able to do without a patio for entertaining guests, at least until you move in.
After determining your priorities, you can use an online house-searching tool to set search parameters and ensure that the house you desire is within your budget. If houses routinely sell for more than the asking price or if you discover that some of your priorities (such as a specific neighborhood or brand-new home) do not fit within your budget, you may need to modify your search.
Note
Attend open houses to get a sense of what you can get for a particular price in a particular neighborhood. Examine a variety of residences with an open mind. Occasionally, online photographs do not do the real thing justice.
Avoid homes that are out of your price range or that are too small or too large for your changing needs, and weigh the pros and cons of purchasing a home in an unfamiliar neighborhood or one that may be difficult to resell in the future.
Location, Location, Location
Many homebuyers are willing to pay for a good school district, a safe neighborhood, a pleasant climate, and an easy commute to work. Since 2020, buyers throughout the United States have been competing for suburban properties in addition to urban properties. Even outer suburbs or "exurbs" have experienced growth in recent years and will likely continue to attract prospective homeowners in search of affordable housing for decades to come.
According to the real estate website Zillow, desirable features of location include:
• proximity to urban core and mass transit;
• low-traffic location;
• proximity to parks and green spaces;
• walkability with sidewalks;
• water or mountain views or waterfront location; and
• walkability with sidewalks.
If one or more of these factors are less important to you, you may be able to find an affordable home that is less desirable than others on the market.
Realtor.com discovered that less-desirable location features that could lower a home's price include:
• Noise from nearby airports, highways, and railroad tracks
• Schools, fire stations, and 24-hour grocery stores within 0.1 mile
• Within half a mile of a populated church or hospital emergency room
• In close proximity to a shooting range, strip club, power plant, homeless shelter, or cemetery
• A high concentration of renters
• A substandard school
If you do not plan to have children or are approaching retirement, you may not be concerned with the "bad school." If you don't mind noise, crowded areas, or strip clubs, you might find a good deal.
Moreover, purchasing the "worst house on the best block" is a time-honored strategy for purchasing a home in an otherwise unaffordable neighborhood and reducing competition. On the other hand, some argue that purchasing a larger home in an up-and-coming neighborhood may be a better long-term investment with the potential for faster equity accumulation.
Note
Consider relocating to areas of the United States where homes are generally undervalued and yet still affordable despite strong regional fundamentals. According to the National Association of Realtors (NAR), Dallas-Fort Worth, Texas; Huntsville, Alabama; and Spartanburg, South Carolina, among others—including Tucson, Arizona—offer a good value.
Selecting the Appropriate Property Type
Generally speaking, single-family homes are among the most expensive options. If location or another priority is more important, you may need to consider condos, manufactured homes, or an older single-family home in need of significant repairs.
Single-family homes:
Single-family homes are more expensive, but they appreciate faster and have a greater variety of types and locations, such as new, custom-built homes in the suburbs and older homes closer to the city center. According to a recent survey conducted by the National Association of Realtors (NAR), many homebuyers consider previously owned homes to be a better overall value.
Condominiums and co-ops
Condominiums and co-ops can be an affordable housing option, particularly for first-time homebuyers. There's many differences between co-ops and condominiums, but both may incur additional fees, homeowners association dues, or costs to cover unforeseen expenses and repairs.
Townhouses:
Townhouses are groupings of multilevel structures that frequently share one or more walls and may or may not have monthly homeowner association fees. Although less expensive than single-family homes, townhouses may have restrictions on interior modifications.
Manufactured homes:
Manufactured homes are typically prefabricated in another location and then transported to the site. They may be less expensive, but they are also susceptible to depreciation over time.
Multifamily homes:
Duplexes or small apartment buildings allow a homebuyer to occupy a portion of the space while renting out the remainder. Tenants will provide you with an additional source of income, but as a landlord you will have additional responsibilities (and potentially expenses).
Note
Some cities offer condos and affordable housing to buyers who qualify. In San Diego, condos may include swimming pools, solar water heaters, and fitness centers. However, if you hope to purchase a home in San Diego, you must plan ahead, as there are hundreds of people on the interest list for the limited number of homes available each year.
Which Size Residence Can You Afford?
Consider a balance between size and savings. Do not abandon your plan to save for a large home, as you will still need an emergency fund for unanticipated repairs and replacements. However, you must ensure that the home's layout accommodates your current and future needs. Despite the fact that children can share rooms or bathrooms for a time, it is important to consider how long you intend to reside in the home before making this decision. If you intend to stay for at least ten years, make sure there is sufficient space for everyone to grow.
Consider the adaptability of existing rooms; for instance, can you convert a bedroom into a home office if you change jobs? The recommended amount of storage space in closets, garages, and other areas is 10 to 25 percent of your home's total floor space. 150 to 375 square feet, if your home is 1,500 square feet.
However, keep in mind that the larger the home, the higher the utility and maintenance costs, especially if the systems have not been updated recently. Energy and upkeep costs are less expensive for smaller homes.
Note
In recent years, smaller homes (less than 1,200 square feet) and two-bedroom homes have appreciated faster than larger homes, but the market for these in-demand starter homes is extremely competitive.
Exterior and Interior Characteristics
The features and amenities of a home may influence pricing and competition. A home that has recently been renovated with an outdoor kitchen and a modernized bathroom may fetch a premium price amidst numerous offers. Even in a desirable neighborhood, the bungalow across the street with the shag-carpeted bathroom could be a steal. Find a good deal by going against the norm.
Some buyers may be turned off by the following features, which could result in lower offers or less competition overall:
• Ugly or dark paint color versus white or neutral walls
• Rooms with carpet versus refinished hardwood floors
• White or black appliances as opposed to stainless steel
• Outdated bathroom and kitchen as opposed to modernized versions
Many buyers, according to a survey of real estate agents, are also turned off by signs of a home's age, such as carpeted bathrooms, shag carpets, popcorn ceilings, wood paneling, and outdated window treatments.
Many homebuyers desire outdoor space for entertaining guests, so keep an eye out for properties that have potential but lack a patio, pool, fire pit, or outdoor pizza oven.
If a home still has an oil-based furnace, for example, it may be less expensive to heat at the moment, but it may cost more to heat in the future, and you will have to pay to switch to a different heat source.
Note
Consider a home's overall energy efficiency and maintenance costs, especially in light of rising energy costs, even if some outdated features are merely cosmetic and simple to fix.
Home Condition and Expected Repairs
Fixer-uppers can be a money-saving strategy. A genuine fixer-upper typically has a low asking price from a seller who is willing to make concessions, but it may be uninhabitable until renovations are completed. Consider your capability to put in "sweat equity" or else the amount of money you need to invest in repairs and renovations.
A home inspection will hopefully reveal any costly system or structural issues, such as a cracked foundation, shifting soil, faulty wiring, broken sewer pipes, or flooding. The roof and siding of the home should be inspected for remaining service life and maintenance costs. Wood panels and wood shake-shingle siding, for instance, require regular painting or staining, whereas aluminum siding is virtually maintenance-free.
Some building materials, such as lead and asbestos in older homes, pose health risks and necessitate costly remediation in the future. Other environmental hazards, including radon, formaldehyde, mold, and insects, can also cause expensive problems.
According to the real estate website Zillow, 81 percent of sellers offer concessions during the home-selling process. Concessions may reduce the home's final purchase price and make it more affordable. Typical seller concessions include a price reduction, the inclusion of existing appliances, the payment of some or all closing costs, and a repair allowance.
Additional Options for Finding Affordable Homes
In addition to scouring the conventional housing market for affordable homes, you may wish to investigate alternative housing markets or resources that are specifically devoted to affordable housing.
Foreclosures
If a homeowner is unable to pay their mortgage and defaults, their bank or lender can repossess the home and sell it as a foreclosure. Depending on your location, foreclosed properties are sold at auction and listed publicly through city, county, or state agencies. A real estate agent who specializes in foreclosures can guide you through the buying process and help you avoid potential issues.
Because the bank is likely in a hurry to recoup unpaid funds, foreclosed homes are frequently offered at attractive prices. A foreclosed home may be less expensive, but it may also need extensive repairs or present difficulties during price negotiations.
Short Sales
A short sale occurs when a homeowner who is having difficulty making payments sells their home for less than they owe on it, prior to the bank foreclosing. Short sale homes can offer good deals, but the purchasing process can be challenging. First, you may be dealing with a bank that has a lien on the property as well as a reluctant seller. Short sale homes can be more difficult to locate than foreclosed properties, so you may want to work with a real estate agent who specializes in this market.
Government Programs
The U.S. Department of Housing and Urban Development (HUD) offers a variety of affordable housing programs. HUD purchases foreclosed properties and collaborates with the Federal Housing Administration (FHA) to expand financing options. For example, the Dollar Home program collaborates with local governments to provide $1 housing subsidies to low-income families.
Single-family and multi-family homes, as well as specific resources for finding foreclosed homes on auction from the IRS, the VA, the FDIC, and other federal departments, are included in HUD's listing of homes for sale.
Note
In certain communities, the Good Neighbor Next Door program will match up to 50 percent of a home's listing price if you are a teacher, law enforcement officer, or another qualified public service professional.
The Bottom Line
It is possible to find an affordable home within your price range, but you may need patience, flexibility, and an open mind regarding your location, the house's features and amenities, and the amount of work you'll have to put into your new, affordable home.
Frequent Requested Information (FAQs)
How is a home's value determined?
Online tools such as Zillow and Redfin can provide an estimate of a home's value, but keep in mind that these are only estimates. The appraised value and sale price may differ from one another. In addition to being lower or higher than the final appraised value and sale price, the home's asking price may also be lower or higher. Additionally, your agent should be able to create a comparative market analysis for you.
Where in the United States is housing the cheapest?
In general, housing is more affordable in the Midwest and Southern states than on the West Coast and in the Northeast. In addition, the median home price is likely to be lower in a colder, rural area as opposed to a warmer city.
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