Resources to help make owning a home a reality.
If you’re among the millions of people who want to own a home someday, you’ve probably spent a good amount of time online looking at homes — and home prices — and wondering “how do people afford houses in this market?”
It’s a reasonable question, especially since home prices and interest rates have both jumped upward in the past few years. But there is a path forward, even during these challenging times, and with some preparation and planning, you can move closer to your dream.
Here are some tips and strategies to help you on your way.
1. Use an Affordability Calculator to understand what you can afford
An affordability calculator is a great place to start because it helps you understand how much you can afford to pay for a home based on your income, debts and the amount you’ve saved for a down payment. With that information, you can discover a home price tailored to your budget and what it would cost each month to buy a home at that price.
Pro tip: Tweak the numbers in Zillow’s Affordability Calculator to see how adjustments to your income, debts and down payment affect the price you can afford.
2. Learn how debt factors into a lender’s decision to give you a mortgage
Debt can be a dream-crusher, so it’s helpful to know how much debt you can carry before it becomes an obstacle to getting a mortgage to buy a home. Lenders will calculate your debt-to income ratio (DTI), or the share of your monthly income that goes toward paying debts. By knowing this ratio, lenders can better understand your ability to make regular monthly payments on a home loan, while still being able to pay for your other recurring debts.
Pro tip: Let a DTI calculator do the math for you. Use it to explore how paying down debt — or accumulating more — changes your financial picture.
3. Use a Mortgage Calculator to get an idea of the overall cost to buy a home in your price range
If you think you have an idea of what home price you can afford (or a home price you want to work towards), use a mortgage calculator to see how the size of your down payment and current mortgage interest rates can impact your monthly payment.
Pro tip: Explore different scenarios and see how much you would save or spend if interest rates increased or decreased, and if you lowered or raised the amount of your down payment.
4. Get pre-qualified to understand more about your budget
Getting pre-qualified gives you a lender’s estimate of what you can afford, based on your self-reported income, assets and credit score. (More about that in a bit.)
Most lenders can pre-qualify you online with no impact to your credit score. You can share your pre-qualification with your agent to focus your search on homes that fit your budget.
Pro tip: Once you begin home shopping in earnest, it helps to get pre-approved from a lender, which involves a more rigorous process where a lender says they will loan you up to a specific amount, provided certain conditions are met.
5. Talk to a loan officer to understand how different mortgage options impact your affordability
Loan officers are mortgage experts who can help you figure out what you can afford based on a variety of financing options. They can also guide you through the loan process, whether you’re still in the shopping phase or you’ve found a home you want to make an offer on. And they can offer advice on common issues, such as whether you can buy a house when you have student loan debt.
Pro tip: Shop around for a lender to get the best mortgage rate. You can explore options through Zillow Home Loans, which offers a variety of financing, including conventional loans, loans with adjustable rates, FHA loans, jumbo loansand Veteran Affairs (VA) loans.
6. Work on your credit score
Your credit score plays a significant role in determining the interest rate you pay on your mortgage. Improving your score can help you qualify for a lower rate, which means you’ll be paying less every month and over the life of the loan.
Pro tip: Learn these eight steps for boosting your credit score.
7. Use the Rent vs Buy Calculator to see if you can afford a home based on how long you plan to live there
Consider your plans for the next few years, and how a home purchase might factor into those plans. If you’re planning another move in the very near future, it might cost you more to buy than if you had continued renting.
Pro tip: Zillow’s Rent vs Buy Calculator shows you the number of years it will take before the cost of buying equals the cost of renting — what economists call the “break-even horizon.” In general, the longer you plan to stay in your home, the more likely you are to hit the break-even horizon and the more it makes financial sense to buy.
8. Work with an experienced agent who can help you identify deals in your market and write up the best offer
Your agent is a key player who knows the local market and the value of any given home in relation to others listed for sale. Buying a home is a team sport, and your agent can help you find a home and write up an offer that reflects local market conditions, the condition of the home and seller motivations that can help reduce the costs of buying.
Pro tip: Check out these tips on how to find a good real estate agent to buy a home.
9. Use a house hunting checklist to set your expectations and adjust as needed
Getting clear about what you want and don’t want in a house and neighborhood is a great starting place. Use this printable house hunting checklist to stay focused during your search and help frame your thinking about what you’re looking for in a home.
Pro tip: For tips on reducing stress while shopping, check out these articles. They could help you identify your non-negotiables and shop more harmoniously with a partner or co-buyer:
- The 13 Emotional Stages of Buying a House
- A Therapist’s 6 Tips on How to Compromise With Your Home-Shopping Partner
10. Broaden your search to include other housing markets that might offer better deals in your price range
Home prices vary throughout the U.S., so if you’re living in a pricey area and have flexibility on where you can live, you might consider looking in markets where prices more closely match your affordability budget. Zillow® economists regularly update market data on major metros around the country, providing a snapshot on where homes are most affordable in any given month. To get detailed information on major metros, check out market trends in the area to see price trends, the share of homes selling above or under list price, the share with price cuts and how fast homes are selling in those markets.
Pro tip: To get the most immersive experience when searching for homes in remote markets on Zillow, filter your search to show homes that provide 3D Tours. Zillow also offers monthly market reports on a variety of topics, including most affordable housing markets, markets with the largest share of price cuts and markets where home prices have increased/decreased the most over the past year.
11. Consider a fixer-upper
Estate sales and homes that are dated or need repairs can represent deals, provided you’re able to do the work yourself or have a budget to pay someone else to do it. If you’ve got the time and circumstances, you can even live in the home and make improvements over time.
Pro tip: Read all about how to find, afford and improve a fixer-upper to see if a fixer-upper is right for you.
12: Consider house hacking
Buyers have gotten creative in the ways they’re living in their homes and using them to generate income to help pay the mortgage. Some people rent out parts of their home or rent out their pools or garages, even their backyards. You also might consider buying a multi-family property, such as a duplex, which allows you to live in one unit and generate income from the other.
Pro tip: A lender can help you explore financing options for multi-family properties, including special loan programs that offer buyers the option to count future rent as income to help qualify for a mortgage.
13. Look at creative ways to save for a down payment
Zillow research found that the share of buyers using gifts and loans from family and friends to buy a home continues to grow, including those who are adding down payment funds to their wedding gift registries. Other buyers cut back on expenses.
Pro tip: Check out this article for creative ways to save money for a down payment.
14. Research low down payment or first-time home buyer options
Depending on your circumstances and where you live, you might be able to qualify for down payment assistance. There also are first-time home buyer programs that allow you to put a smaller amount down toward the purchase, although buying with less than 20% down often requires the purchase of private mortgage insurance, which adds to the monthly costs.
Pro tip: Explore down payment assistance options and talk to a loan officer to explore mortgage options with low down payments.
15. Calculate the mortgage costs on a specific home you love
Every Zillow listing has a monthly cost calculator that allows you to factor in utilities, property taxes, homeowner association fees and mortgage insurance to see what you’ll be paying every month. The listings also have information that allows you to figure out how easy it might be to get around without a car, which can save a lot of money.
Pro tip: Use the listings calculator to sync up your affordability limit with the costs of any given home.
16. Look for ways to lower buying costs, including hidden costs
Depending on the home you buy, your costs could vary substantially. For instance, some homes have hefty homeowner association fees that would add to your monthly costs. And property taxes, which are based on home values, also vary depending on the locale. It helps to factor in those costs when shopping so you know whether you can save by refocusing your search.
Pro tip: Use Zillow’s Property Tax Calculator to compare homes in different locales. And if you’re looking to save after finding a home you want to buy, consider asking the seller for concessions to help with closing costs. Be sure to shop around for homeowners insurance, as well, to get the best price.