How to Actually Afford to Buy a Home

Home buying hurdles exist — but research, creativity and flexibility will help you clear them.

Home buyers today face tough challenges — housing prices have soared, a dollar doesn’t go as far as it once did and rent is more expensive than the past.

How are people today making such a large purchase despite these hurdles? With more flexibility and a bit of financing creativity, today’s buyers are finding ways to achieve homeownership.

Know your options (and credit score)

The first step to knowing if you can afford a home is figuring out what financing options are available to you, including what mortgages you’re eligible for and how much you need (and can afford) to put down upfront.

Learning the minimum FICO score required by lenders and understanding your own credit score are important starting points.

Many home shoppers aren’t sure how much they have to put down on a home, what the lender-required minimum down payment will be (it’s not always 20%), or what programs are available to help with down payments, like FHA loans.

Before buyers even start thinking about saving for a home, they should know what their financial resources are and if they’re eligible to buy.

Make enough money to save

With fewer resources to pull from than their older, wealthier counterparts, renters wanting to buy face tough financial headwinds.

According to the Zillow Group Consumer Housing Trends Report 2019, renter households typically earn a median income of $37,500 annually, which is nearly $40,000 less than the median household income netted by households who recently bought a home (of whom the median household income is $75,000 annually).

While there are ways to enter into homeownership without making $75,000 in household income, it’s hard to afford to buy if you make significantly less. “If you’re making $37,500 per year, it’s probably not feasible for you to buy in almost any market,” says Zillow Chief Economist Dr. Svenja Gudell.

While households purchasing homes are more likely to have two incomes than renter households (and thus a higher median household income combined), even two-income households struggle to afford to buy in competitive markets.

Save enough cash (but not as much as you think)

One of the most daunting parts of home buying? The down payment. In fact, two-thirds of renters cite saving for a down payment as the biggest hurdle to buying a home, according to the Zillow Housing Aspirations Report.

For people buying the national median home valued at $229,000, with the traditional 20% down payment, that’s $45,800 upfront — just to move in.

“The down payment remains a hurdle for a lot of people,” says Gudell. “But they should know they don’t have to put 20% down.”

Although putting down less than 20% means additional considerations, such as the cost for private mortgage insurance (PMI), some find it worth the hassle. In fact, according to the Zillow Group Consumer Housing Trends Report 2019, only one-fifth of recent buyers (20%) put 20% down, and just over half of buyers (56%) put less than the traditional 20% down.

Buyers are also getting creative about piecing together a down payment from multiple sources. According to the report findings, 34% of buyers who get a mortgage also get help in the form of gifts or loans from friends and family to come up with a down payment. 

Know your deal breakers, but be flexible

To get into a home — even if it’s not the home of their dreams — some of today’s buyers are considering homes and locations outside of their initial wish list and getting increasingly flexible when it comes to neighborhood, house condition and even home type.

“I do think people get discouraged when they look in their target neighborhood and they see homes around $170,000 when they’re looking for a $110,000 home,” Gudell says.

Affordably priced homes do, in fact, exist. But in popular areas, where people most often want to live, it’s going to be harder to find that cheaper home, Gudell says.

“If you’re willing to take a longer commute and make a couple trade-offs, you might be able to find a home that is farther out that might be cheaper,” Gudell explains. “You have to leave the paved path before you can find cheaper choices.”