What If You Can't Afford The Home You Want?

You know exactly what type of home you want… but you can’t afford it. Now what?

In South Jersey*, listings are down. The amount of homes for sale on the market is an incredibly small number, compared to what we’d see in a “normal” and “balanced” market. This means that:

Can you relate to this last scenario? Whether you’re looking at a certain neighborhood to be near the school you want for your kids, or you really want a certain amount of bedrooms and bathrooms, or you have some niche needs, there’s many reasons why you want a certain type of house without compromise. So when you can’t afford what you want, you wonder: "What the heck can I do?!" Let’s talk about some strategies to help you find your dream home, within budget.

*Camden County & Burlington County specifically

If you’ve read any of our any of our other blogs, you will know the most important initial step of buying a home is…

If you base your house affordability off your Credit Karma score and online mortgage calculators, you’re missing a huge opportunity by not getting pre-approval from a trusted, local mortgage lender. The pre-approval process is really easy, and at the end a lender will tell you exactly how much you can borrow, and how much house you can buy.

Once you have that number in place, your best strategy is looking for homes at around 10% lower than that amount. For example, if you’ve been pre-approved for $350,000, then look at homes listed at less than $320,000. This way, if you find the home you love, you have some wiggle room to offer an over-asking price that should impress the sellers!

(But, if you’re offering over-asking price, your lender might be concerned with appraisal issues, so be sure to chat with a trusted local real estate agent about this.)

Having a pre-approval letter to submit alongside your offer also gives you an upper hand: it’s proof to the seller that you’re taking this seriously and DO indeed have the funds to afford their house.

There’s another reason you should speak to a trusted lender too… if you have some extra funds available, there might be some flexibility to “buy down points”.

Bankrate.com describes mortgage points as:

Since interest rates are currently above 7% (at August 2023) which adds a lot of extra expense to your mortgage, reducing your points will bring down your monthly payment, making your dream home more affordable.

And if you don’t have excess funds, perhaps a family member would gift you the money to buy down those points to enable you to acquire this dream home. Worth an ask, eh?

Your Debt-To-Income (DTI) ratio might be a reason why you cannot afford the home you want. When analyzing how much a mortgage lender will loan you, they’ll compare the amount of income you have to the debt you owe.

The lender won’t allow you to overextend yourself by borrowing too much relative to your income, in case you find yourself in a position where you cannot afford the mortgage (and lenders reaaaally want to make sure you can pay them back 😉).

This is another important reason to work with a fantastic lender because they’ll analyze your finances and strategize about what debt to pay off first, and what debt to consolidate, in order to bring your DTI down.

A good lender is an invaluable tool in your arsenal; it makes all the difference working with someone who finds solutions to save you money, compared to a unhelpful lender who you can’t even get a hold of when you need them. Contact The JFKLiving Team if you want a list of our vetted lenders.

📮 RELATED POST: BOOSTING YOUR DEBT-TO-INCOME RATIO

There are certain things that might be non-negotiable in your househunt. For example, you might need a certain number of bedrooms for your kids. Or it might be necessary to have extra space for a home office since your business went fully remote. Maybe you still have a commute and want to make sure you’re not traveling for more than 20 minutes each way every day because you really hate traffic?

When hiring a trusted hyperlocal (with a huge focus on ‘local’) real estate agent, they will conduct a thorough Buyer Consultation with you to establish your specific Wants vs Needs list.

Having someone on your side who knows the area inside out will give you a huge advantage when it comes to househunting. They might be able to find you a more “affordable” neighborhood to live in that you hadn’t previously considered, which is the same distance to your work.

They’ll have a good idea of the flexibility and limits of the Borough or Township, meaning they can advise you if it’s possible to add an addition on a property (but of course you still need to acquire relevant permits to know for sure if you can build!). Perhaps you desperately want 2 full bathrooms but that type of home is out of your financial reach…

…your realtor might be able to find you a home with 1 bathroom, but it has a big enough backyard that you have potential to add an additional on the back with another bathroom.

They should also be able to provide you with a rough estimate of how much this’ll cost, so you can budget for it.

Or maybe you want kids in the future but want to buy your forever home now. A real estate agent might be able to find you a rancher that has potential to add a second story down the road, which may make it easier to get in a home right now and start building equity.

When being in a position where you can’t afford the type of home you really want right now, it might be time to compromise with some sweat equity.

While it might seem super intimidating (particularly if this is your first home purchase!) to buy a home that needs to be completely renovated, or even partially, it might be more achievable than you think. The benefit of buying a fixer upper is:

If you’re unable to stay with friends or family while renovations are happening, it’ll be important to find a property that you can live in while you do the work. So be sure to keep this in mind when you’re househunting.

If you or your partner is fairly handy, you’ll save so much money by putting in the sweat equity yourself, giving you ultimate control over your property. However most new homeowners will usually hire a contractor, so make sure you shop around and get a few different estimates.

It’ll be important to househunt with a highly experienced realtor who’ll be able to look over the house layout with you and work out what’s possible, how much things might roughly cost, and help you come up with a reasonable offer on the home.

Don’t be put off by a little bit of remodeling. After all, if you want to move into your dream home, what can be more exciting than being able to design it yourself to ensure it has everything you need?!

Another strategy that might seem extreme to some, but a goldmine to others, is househacking. Rocket Mortgage defines househacking as:

For many buyers in South Jersey, househacking has generally looked like purchasing a duplex and renting out the unit you don’t live in to a tenant. Naturally most people don’t want to live with a stranger forever, but this could be a shorter term situation while you save up some money to afford the entire property yourself.

We've even seen our own JFKLiving clients purchase a duplex property, rent out the upstairs unit to a tenant, and were able to charge enough rent to completely cover the mortgage payment!

In this situation, by essentially not having to pay your own mortgage, you might be able to save up enough money after a couple of years to be able to:

You also don’t necessarily have to live with strangers... many people purchase a home with the intention of having a friend or family member move in with them, who pay the rent to live in the other unit. If this is something you’d consider, ask around your loved ones if anyone is looking to rent a property in the same area you are looking in.

If none of these methods sound appealing to you, don’t despair. There’s actually many options if you’re looking to buy a home and think you’re priced out of what you want; you simply have to speak to a trusted, local real estate agent who can provide solutions with you.