It’s no secret that buying a home is expensive. According to Statista, median prices for homes in the U.S. rose to $429,000 in the first quarter of 2022. This figure is at an all-time high and out of reach for many buyers. And between the down payment, closing costs, and moving expenses, it can be challenging to come up with the money — especially if you have a limited budget.
But just because the median price for a home is high doesn’t mean that you can’t find a place to call your own without breaking the bank. In fact, there are several financing options available that can make purchasing a property more affordable. Here are some of the best ways to buy a home on a small budget.
Conventional Bank Loans
A bank loan is one of the most traditional ways to finance a home purchase. Many aspiring homeowners choose this route because it offers predictability and stability.
With a conventional bank loan, you’ll know exactly how much you need to borrow and your monthly payments for the loan term. These loans are typically available with fixed or adjustable interest rates and can be obtainable for primary and secondary residences.
However, to qualify for a conventional loan, borrowers typically need good credit standing and a down payment of at least 3-5%. But this figure still depends on the lender. Some banks may require a higher down payment, while others offer programs suitable for your financial situation.
Nonetheless, a bank loan is still ideal if you have the necessary qualifications. So, if you’re looking to finance your home purchase on a small budget, this could be an excellent option.
Borrowing from Family and Friends
If you have a relative or close friend with extra money, they may be willing to help you finance your home. Of course, this isn’t an option for everyone. But if you have someone willing and able to help, it could be a great way to come up with the funds for a down payment or closing costs.
When borrowing money from family or friends, drawing up an official loan agreement is essential. Doing so will help protect both parties and avoid any misunderstandings down the road. You’ll also want to make sure that you can comfortably make the monthly payments. After all, you don’t want to strain your relationship because of money.
If you decide to go this route, be sure to treat the loan like any other — by making timely payments and keeping up with your end of the agreement. This way, you can maintain a good relationship with the person loaning you the money and avoid financial stress.
Mortgage Refinancing
Another option for those looking to buy a home on a small budget is mortgage refinancing. This strategy involves taking out a new loan with more favorable terms than your current loan.
When you get mortgage refinancing, you can lower your interest rate, reduce your monthly payments, and extend the term of your loan. What’s good about this financing strategy is that you can do it without spending additional money. This makes it an ideal option for those who want to lower their monthly payments but don’t have the cash on hand for a traditional down payment.
Many companies can help you with mortgage refinancing. But be sure to compare rates and terms before you decide on a new loan. In doing so, you can ensure that you’re getting the best deal possible.
Government-Backed Loans
For those with a limited budget, government-backed loans are another excellent option. These loans are typically available through state and local housing finance agencies. But they can also be found through the federal government.
The most popular government-backed home loan is the FHA loan. This mortgage is insured by the Federal Housing Administration and requires a down payment of just 3.5%. And unlike conventional loans, FHA loans are available to borrowers with less-than-perfect credit.
Another popular government-backed loan is the VA loan. This mortgage is available to active-duty military members, veterans, and their spouses. And like FHA loans, VA loans don’t require a down payment. There are also USDA loans available to low- and moderate-income borrowers in rural areas.
With the myriad of government-backed loans available, there’s sure to be one that fits your needs. This method could be the way to go if you’re looking to buy a home on a small budget.
The above are just a few financing options available to those looking to buy a home on a small budget. So, if you’re ready to take the plunge into homeownership, be sure to explore all your options and choose the one that’s best for you. You have lots of choices available that can help make your dream of homeownership a reality.
