Quick Tips for Cash Strapped Homebuyers
Updated: Aug 30
The Game Has Changed.
Scores of millennials think they are screwed when it comes to homeownership. When looking at the data, it’s understandable why would-be buyers feel this way.
It is without a doubt, more difficult for younger buyers to purchase a home today because wages have not kept up with the rising costs of owning a home.
This data should go to show why it’s important to own real estate sooner than later.
The solution to the financial hurdles in the way of ownership is leverage. Understanding how these markets work and how people can make the homebuying process work for them.
If one is willing to actively work towards homeownership, there are people here to help you FOR FREE. Start a working relationship with a lender, Realtor, and perhaps a financial advisor. All of whom work for commissions and not out of your pocket. You won’t want folks who frequently try to sell you on something. Finding someone who wants to help serve you is going to be the most beneficial. You may have to sift through some salesman types, just find someone you trust.
In theory, a home could be bought without any cash on hand. This is a highly unlikely scenario and most sellers would not be inclined to accept such an offer, but it is possible.
The two things cash is needed for are the downpayment and closing costs. These expenses vary widely and differ in every transaction. The good news is that you don’t need 20% down to buy a house and though closing costs need to be paid, they can be negotiated for the seller to cover some or all. In some cases, a 2nd lender will even cover them.
While downpayment varies based on the type of loan, closing costs generally average between 6k-10k nationally.
The greatest thing about purchasing a home is the ability to leverage other people's money.
Each type of loan has its own requirements, more can be learned here.
Starting Without Cash
The most obvious thing you need to do is save cash. Make a plan for how to save and/or earn some on the side. This will go a lot further than most people think. $27.40 per day is $10,000 a year.
One of the best ways to capitalize during this process (if you qualify) is to find an IDA (individual development account). This savings account varies from each organization, but it will match your savings for a given period up to a limit. In many cases they will match your savings 1:1 sometimes 2:1 and even 3:1. This means if you found an equal match program up to 12k, you put in 6k and they match. You walk away with 12K. Enough to cover closing costs.
If you live in Oregon (where I am licensed), the state offers a first time buyer savings account. This account will allow any Oregon resident to write off deposits up to $5k per year over they course of a 10 year period.
Another option worth considering is a Soft 2nd mortgage. When these are used in tandem with a conventional loan, they will generally cover your down payment and closing costs. Payment on the 2nd loan can be put off until you sell the home years down the road and pay out of the equity built up in the home.
Cash is the biggest hurdle. When you can get approval for a loan with affordable monthly costs, the pay back after years of ownership can make it well worth it. Not to mention the tax write offs for interest paid. To get positioned with the best rate possible, be sure to pay off bad debt as early as you can.
Understand Real Estate
While the monetary plan is getting sorted out, start paying attention to the real estate market. You will want to start picking up on pricing, supply & demand, geography, and what type of market you’re dealing with (buyer vs. seller). Most market knowledge comes from simply playing attention. If you can understand price range and affordability by location, you’ll be able to understand what it is you’re looking for and where you can get the most out of your dollar.
The last thing I will touch on while considering buying a home is leveraging relationships with those you know in the industry. Any active Realtor and/or lender should keep you informed and ready for when opportunity presents itself. They will coach you through this entire process and speed up your learning curve tenfold.