First Time Home Buyer on a Budget

About two years ago, my fiance and I purchased our first home. If you’re anything like we were, finding a home within budget was our first, second, and third priority. After looking at several homes, we quickly realized that in order to make our dream of owning a home a reality, we needed to find a fixer upper. 

Don’t get me wrong, touring newly built and immaculately renovated homes made it very tempting to raise our budget. I mean who wouldn’t want to move into a beautiful home without needing to lift a finger? A newly finished home may be convenient, but keep in mind there are several benefits with a fixer upper as well. 

When buying a fixer upper, not only will it be easier to stay within a tight budget, but it also gives you the opportunity to put your own stamp on your home, down to the finest detail. Often, a few simple updates will immediately add value to your home without having to wait on appreciation. In fact, you might even be able to find a home in your dream neighborhood without breaking the bank.

But before you buy a fixer upper (or any home for that matter), here are the three main things you should consider, and research before putting in an offer.

3 Things to Research before begin your house search

#1 – Lenders

Whether you’re a first-time home buyer, or have experience buying real estate, it’s essential to do your research before getting started. Buying a home is one of the biggest investments you will ever make, so make sure you’re going about it the right way from the get go. 

Lenders and lending programs in your area are the first thing you should start researching. The best way to get your foot in the door when buying real estate is by having a pre-approval letter from a bank or lender, before you begin your house search.

I recommend meeting with at least three different lenders before settling on one you like. Each lender will have different rates and loans offers, so it’s important to find a lender you trust and a rate that puts you in the best financial position. 

Most lenders are able to offer special loan programs and financing options, especially if you are a first-time home buyer. Ask about FHA and VA financing options, to see if you qualify for these programs. FHA and VA loans can help you purchase a home at a lower rate, with a smaller down payment compared to a conventional loan.

In some states, FHA and VA loans will even allow you to buy a home with multiple units, under the condition that you occupy one of them. Purchasing a multi-unit home and renting out the extra unit(s) can be a great opportunity to bring in passive income, and offset your mortgage payments or renovation costs. 

Additionally, some lenders are able offer construction loans for homes that need to have a lot of work done upfront. A construction mortgage, is essentially a loan used to build a new home or extensive renovation. Once construction is complete, these loans can sometimes be converted to a standard mortgage.

While in construction, construction loans are typically interest-only and the lender disburses money to the borrower incrementally as the project progresses. If you purchase a home that needs a lot of updating, this can be a great way to bundle your mortgage and construction costs into one low interest loan upfront.

#2 – Realtors

Finding and hiring a realtor to assist in your house search, is arguably the most important decision you make when buying a home (apart from the actual house itself, that is). Not unlike shopping for lenders, always interview several candidates before making a final decision.

Your real estate broker will be your advocate and advisor throughout the home buying process, so feeling comfortable with them representing you is extremely important. Your realtor will be the person setting up your showings, pulling listings of interest, and ultimately going to bat for you in negotiations once you make an offer. Having a realtor who understands what you’re looking for and has your best interest at heart is key. 

If you know you want a fixer upper, mention this to your realtor. You should also make clear what renovation and construction costs you’re willing to take on. There is a big difference both in budget and timeline, for a home in need of a few updates (new paint, replacing appliances, etc.), compared to a home needing a full renovation (updating kitchens & bathrooms, removing walls, adding an extension, etc.).

Know what your limits are in terms of renovation costs and scope before you have discussions with your realtor. Personally, I find it’s always best to ease into home renovations, especially if it’s new to you. Biting off more than you can chew can sometimes be a recipe for disaster, leaving you feeling overwhelmed and drained.  

Buying a house with someone

If you plan to purchase a home with another person (such as a significant other), it’s a good idea to have a discussion with them before you meet with realtors to ensure you’re on the same page. It’s easy for confrontations to arise while looking for a home, especially if you have differing opinions on what’s most important to you. 

I recommend taking the time to individually write out a ‘home checklist’. When you’re both done with your lists, compare your answers. Then start a new home checklist that is broken down into three categories: ‘must have’, ‘should have’, and ‘would be nice’ items. Any items that appear on both of your lists should be placed under the ‘must have’ category, these will be the highest priority in your house search. 

Any differing items between your lists should be used as a starting point for discussions. Talk through which items are most important to you and why, then go through which items are less crucial (and vice versa). The key here is to listen to one another, and try to come from a place of mutual understanding and respect.

Rank your differing items in order of importance, and place the most valued in the ‘should have’ category. Meanwhile, any remaining items that are seen as less critical should fall into the ‘would be nice’ category. 

Having this conversation with your partner early on, will help manage expectations and prevent confrontation. Once you’ve finalized your combined checklist and you’re on the same page, it will be much easier to work together as a team. Give your final checklist to your realtor, this will help them understand what is most important to you, and what to prioritize when searching for listings.

#3 – Neighborhood(s)

Location, location, location! The one thing you will never be able to change about a property is the location. That’s why it’s so important to thoroughly research neighborhoods, and determine where you want to live before starting your search.

Take the time to drive or walk different neighborhoods that spark your interest during the day and night. This will help you to get a feel for the area, neighbors, and nearby amenities like parks, restaurants, and shops. If you have kids, research the local school district(s) as well.

In highly sought-after neighborhoods, finding the worst house in the best neighborhood is a great way to stay within budget, while putting yourself in a good position for a large return on your investment. 

Alternatively, finding a home in a neighborhood that’s on the rise (or gentrifying) is a great way to get ahead of the real estate market. A neighborhood with growth potential, is a great opportunity for property appreciation and a large return on your investment. Homes in gentrifying neighborhoods tend to be less expensive, giving you more room in your budget for renovation costs. 

Other Costs to Consider

When buying a home, there will be several costs you should consider and expect. Before you put an offer on a home, know what you are getting yourself into financially. 

Once you decide to put an offer on a house, you should find a good home inspector that you trust. An inspector will be able to identify any major issues with a home that may cost a pretty penny to repair.

Home and Renovation Budget

Before you start looking at houses, put together a renovation plan and budget. Calculate a price you are comfortable with for the home loan, and the renovations combined. Your home loan shouldn’t make up the entirety of your budget, you will want to have additional funds available for renovations if necessary.

Additionally, go in with the expectation that you will go over budget. Calculate unexpected costs and expenses into your renovation budget, that way if you do go over budget you will have already planned for it in advance. 

Home Improvement Loans

There are several options for personal and household loans you can utilize for your renovation expenses. If you already own your home, you can use your home equity you can use is for various expenses including home renovations. Another option is filing for a personal loan through loan programs like SoFi can give you the cash you need to finance your home renovations. As I mentioned earlier, some lending institutions and banks provide home improvement loans. 

For more info on home equity and how you can borrow money using it, click here.

Earnest Money and Closing Costs

With every real estate purchase, there will be expenses associated with it such as: earnest money, down payment, inspections, appraisals, insurance, and closing costs. Talk through these expenses with your lender and realtor ahead of time. That way, you will know what these costs will be and when you need to pay them. 

Refinancing

If you’re already a homeowner and you have built some equity in your house, you can use refinancing as means to fund home improvements. Talk to your bank or lender about what refinancing options are available to you.

If you decide to refinance, run a few calculations of your own to ensure your new rate will make refinancing worth it. The key piece to take away here, you want to add value to your home, not put yourself in a worse financial position than you were in originally. 

Don’t Forget to Have Fun!

Take your time in your home search, and make sure you find the right house for you. Don’t be afraid to ask questions and do your research ahead of time, become as knowledgeable as possible before you dive in.

At the end of the day no house will ever be perfect, so if you decide to buy a fixer upper have fun with it! This will be a labor of love! So go ahead, imagine the possibilities, visualize what your dream house would look like and make those dreams a reality!

If you enjoyed this post, and would like to read more, like, share and subscribe to The Bonus Space for more helpful posts and tutorials about fixer uppers, DIY and home improvement projects. You can also follow me on Facebook, Twitter, Instagram and Pinterest for more fun tips and tricks!

If you have any questions, or would like to share some helpful tips of your own, leave a comment below or email me directly at melanie@pillartoposthomes.com