People who want to buy homes today face hurdles their parents could only imagine. The soaring costs of higher education mean many people start their lives burdened with debt, leaving them stuck on the rental roller coaster.
However, it is possible to fulfill your dream of homeownership if you are willing to put in hard work and think outside that pesky little proverbial box. Here’s how to buy a house in 2021 — and choose the path that most realistically works for you.
1. Adjust Your Expectations
If you dream of a three-bedroom chalet in the suburbs, you’ll need considerable advantages to pull it off. However, given the reality of wage stagnation, it’s wiser to buy something less-than-ideal than continue to rent. Why?
Rental prices continue to outpace inflation, meaning that, eventually, you’ll start drowning no matter how hard you work unless you get lucky. Landlords sell and foreclose according to their whims, not yours. Each time you have to move, your rent goes up. And if you live on a razor-thin budget with little room for saving, the cost of moving trucks and deposits can quickly eat through what you set aside for a mortgage down payment.
Therefore, your starter home might be considerably smaller or sit farther out in the countryside than you originally hoped. It’s wise to list where you won’t compromise and where you will allow wiggle room.
Don’t sacrifice quality, especially when it comes to your family’s safety. A garage door that needs a fresh coat of paint is an easy and cheap fix, but an automatic model that jerks when it moves or has loose seals will cause costly problems. Many people, frequently children, die in such accidents each year.
However, going smaller might benefit you in unanticipated ways. If you’re trying to avoid paying private mortgage insurance, saving up a 20% downpayment for such property takes less time. Such homes also save you a bundle on monthly utility costs, and they can be a boon when you retire and have less energy for maintenance tasks.
Looking further afield is another option. While long commute times once made country life unpalatable for many, roughly 16% of jobs that went remote during the pandemic intend to keep telecommuting options intact. Such arrangements save employers considerable overhead costs and might make it possible for you to live your dream.
A final alternative is to forget the traditional approach. If you don’t need to lay down roots, living in an RV may be a wiser fiscal choice while you save for a mortgage than paying rent. You’ll need a place to park your ride, but consider this option if you have a friend with a spot. It can cost $35 or more a night to find a camping spot with hookups.
Some handy DIY types build tiny homes on wheels and later move them to a suitable plot. Others use theirs like RVs. If you choose this route, you’ll have more customization options, but you’ll still need to pay attention to state and local ordinances in terms of building requirements.
2. Consider Your Mortgage Alternatives
When it comes to getting a mortgage, you’ll need to decide between conventional and government-backed versions. The type you’ll qualify for depends on your credit score and downpayment amount.
Conventional loans can offer appealing terms, but they have stricter qualifying terms since the government does not back them. You’ll need a credit score of 620 or higher, and many require a 20% or greater down payment. Some firms may approve you with as little as 3% down, but you will need to pay private mortgage insurance.
FHA loans are insured by the government and let you have a credit score as low as 500 if you have a 20% or more down payment. Those with credit scores of 580 or higher can eke by with a 3.5% down payment.
Those who served in the U.S. military need not pay a down payment at all with a VA loan. While you will need to pay a funding fee, you won’t need to pay for mortgage insurance.
Fixed-Rate Versus Adjustable Mortgages
Another decision you face is whether to go with a fixed or adjustable-rate mortgage. Fixed-rate mortgages are a snap to understand, although you have both 30-year and 15-year options. A 15-year mortgage means paying off your home more quickly for a higher monthly rate.
Adjustable-rate mortgages are ideal if you plan to sell or refinance before the rate changes. For example, if you expect a considerable income increase in a few months, you could get in your dream home now for a lower price, then refinance to a fixed rate later when you have more money each month.
However, you have to be careful — when rates change, your monthly payments can skyrocket, which is how many homeowners ended up in trouble during the 2008 financial crisis.
If you look beyond a site-built home and consider a manufactured version, you might be able to score a chattel loan. With these, your property secures the loan — but you might not get as much wiggle room in terms of repayment. You’ll pay a higher interest rate, although you will likely enjoy a speedier closing process.
3. Wait to Inherit
A recent personal finance article received some deserved flack on social media. In it, a woman described how she paid off her student loans by moving into a home that belonged to her mother, then later moved in with her grandmother and rented the inherited property to resolve her outstanding balances.
Critics rightly noted that this tale offers a solution only to those with the privilege of having a place in someone’s will to cope with modern economic realities.
The unfortunate truth is that housing prices have inflated much faster than wages for decades. As a result, a new hierarchical caste system arose, with those owning no property at the bottom. This figure includes highly paid professionals paying off their landlord’s mortgage instead of accruing equity in their own property.
However, if you are among the fortunate few whose parents own property, waiting for inheritance might be your homeownership path of least resistance. If that prospect sounds too morbid, consider talking to your folks.
If trying to save a downpayment is what’s holding you back, perhaps they’d take out a home equity line of credit and let you pay them back over time. In most states, owning a home is now cheaper than renting, and the extra you save can reimburse your folks.
Explore These Strategies to Buy a House in 2021
In many ways, it’s more challenging to achieve the American dream of homeownership than ever. However, by exploring the strategies above, you can buy a house in 2021 that fits your budget and lifestyle.
About the author: Rose Morrison is a real estate and home improvement writer and the managing editor of Renovated.
