Young couple that bought a home

It used to be that no one even considered buying a home if they had any other debt to their name. This was when you could pay for college by working full-time while you studied, and whole families existed on one income.

In this country, credit has become such a huge part of our lives that we hardly think about it anymore. Until we get those bills piling up, right?

Of course, you shouldn’t buy a house if you are deeply in debt and are not able to pay the bills you already have. If you have abused your credit cards in the past, rest assured that you are like many Americans.

However, you may also need to reduce your spending drastically until you can get your debt to income ratio under control. The highest recommended debt to income ratio is 43%. That is usually the rate under which you have to fall in order to qualify for a home loan.

Rent or Buy

You have heard that it makes more sense to own a home than to rent. This is true even if you have to borrow money to buy it. Most people do have to borrow. Every payment you make on your purchased home goes toward building equity in your property, and it will increase your net worth.

When you rent, you are paying someone else and they get all the equity. It makes the idea of a home loan sound more attractive.

It can be good, in this situation, to think about why you are longing for that home. Are you taking your cues from the home renovation shows which make owning your dream home easily attainable? Are you simply hoping for a way to be on your own and to build credit? Do you want to increase your family size?

Even with school debt, it can be doable. There are two main ways to think about owning a home despite being in debt.

Going Small

So many options exist for this, but it may be necessary to think outside the box. Once you have convinced yourself that you must go small, you have much more freedom to consider the possibilities.

Are there smaller homes in your dream area that you overlooked before? Maybe the kids could share a bedroom and you can jump on that minimalist bandwagon. A big backyard could be a potential place to add a bedroom down the road when things aren’t so tight.

Maybe you have a relative with a large property or want to live in an area with available plots of land. In most cases, you can get the zoning to have a tiny house built right. The tiny house movement is becoming more and more popular as they are both environmentally sustainable and economically easy.

In any case, a small home is cheaper to maintain, heat, and cool than a larger one, so you will also save on utilities once you live there.

Becoming a Landlord

Another way to afford a home with a restricted budget is to buy a home with an accessory dwelling unit, or ADU, or the potential to create one. If you can rent out a basement or attic space, you can use the rent to help with mortgage payments.

Another Helpful Option

An FHA loan is a good option for some potential homeowners. These loans commonly allow you to pay a small down-payment, only around 3% of the home’s value rather than the more common 20%.

Conclusion

Just because you have some debt may not mean you can’t afford to buy a home. By re-thinking your idea of what buying a new home means or looking for something with a potential rent-able spot, you could potentially afford to be owning your own home and building your own equity.

When you are ready, please give us a call. We would be honored to help!

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