Watched “Selling Sunset” and decided the $40 million mansion in the Hollywood Hills is the perfect home for you? We love it too! Too bad it’s just slightly out of our price range.
But if you can’t afford your dream home right now, look on the bright side: The home you can afford can be a stepping stone to get there! 🌞 With some strategic financial planning and a little bit of patience, you’ll be on your way in no time.
It’s OK to buy what you can for now
Walter Armendariz, a loan coordinator with West One Capital Group (a mortgage company in Laguna Beach, California) recently met with a couple who saved up $25,000 for a down payment on a home in Huntington Beach, an oceanfront area just outside of Los Angeles. But since the median home price in there is close to $900,000, according to Zillow, they still had a little way to go to have 3.5% or more as their down payment.
Head’s up: While 20% of the sales price used to be standard for a down payment on a home, that’s no longer the case. Check out our post on low down payment programs for more.
Rather than continue to wait to live in their desired neighborhood, Armendariz suggested that his clients buy a condo in Huntington Beach to live in while saving for a single-family home. The condo would serve as their “starter home,” which is a term that refers to a home you can afford to buy and own until you can afford another.
“Then they have the option to rent the first home out, or sell it if they need the funds to buy a larger house,” he explains.
Psst … is it possible to buy a home with no money whatsoever? We explain!
A financial plan will keep things moving
Whether you’re saving for your first or second home, a good financial plan will help you stay on track toward your dream. Here are some things to include:
- Goal. Your goal can include the area you want to live in, along with the size and type of the home, and an estimate of how much it will cost.
- Timeline. Estimate a timeline based on how much money you can save per week, month, and/or year — this will give you an idea of how long it’ll take.
- Steps. Your savings plan is a step, but for many homebuyers, so is a starter home. “Starter homes teach you a lot about what to expect and set you up for success,” Armendariz explains. “Then, depending on your financial situation, you can rent out the starter home or sell it and use the [profit] to put a larger down payment on your next home.”
- Revisions. Got a raise? Had a baby? Revise your plan according to your life changes.
Need some help establishing a plan toward a 25,000-square-foot mansion with a 15-car garage and a 175-foot wraparound swimming pool? Yea, we do too.
All jokes aside though, a local real estate agent can give you an idea of what it’s going to cost, and a housing counselor or lender can help you sort through your finances in the meantime.
For more tips, check out these posts:
- Don’t have savings? Our finance expert explains whether you can buy a home with no money.
- Seeing some good deals for sale? What you need to know about buying a foreclosed home.