BorrowMortgagesHow to Find Your Dream Home on a Budget

How to Find Your Dream Home on a Budget

Your dream home is only 10 steps away. We’ll show you not only how to find it, but how to prepare and protect yourself during the home-buying process as well.

Ad Disclosure: This article contains references to products from our partners. We may receive compensation if you apply or shop through links in our content. You help support Smarts by using our links.

Finding the perfect dream house can seem impossible, especially without an unlimited budget. Balancing cost with getting all the amenities you want takes a certain amount of skill and sometimes it’s not always possible to make everyone happy.

However, there are steps you can take to get you closer to your dream home, including the 10 steps in our guide below. From keeping only a few options in mind at once to researching your mortgage lending options, each of the steps ensures you’re getting the most out of the homebuying process for a better end result.

After completing these 10 steps, you should be closer to not only finding your new home, but protecting and improving the value of the home you end up purchasing. You’ll know more about the neighborhood, what amenities are nearby, and potentially how much you can sell your home for in the future, if you so choose.

Ready to find your dream home while you’re still awake? Let’s get started.

Finding Your Dream Home Step-by-Step

Becoming a homeowner doesn’t have to be a monumental task. Follow these 10 steps to find your dream home, no matter where you live or what your price range is. You may find yourself skipping around for a few steps, but that’s okay. Searching for a home is as unique a process as the living spaces themselves.

Step 1: Search online

One of the easiest ways to find homes for sale is to search online. There are many sites you can navigate to in order to find homes for sale, but narrowing them down to a select few can help you stay on track before the house hunting even begins.

In fact, you may find some sites duplicate the listings on other popular sites without adding any new properties, so searching on 2-4 main websites is plenty for finding a property to fall in love with. 

Popular house-hunting websites include:

Many of these websites also have a mobile app that you can download for searching on the go. For example, Zillow’s app is a popular download that can help alert you of new properties that just arrived on the market.

Step 2: Visit neighborhoods

A house is more than just the property itself. You’ll also want to investigate surrounding areas such as neighborhoods, parks, shopping amenities, and hospitals. Your home will act as, well, your home base, so having some of these specific amenities within walking distance could be high on your priority list.

In visiting the neighborhood, consider your commute time. What different paths can you take to get to work? Take into account the different seasons as well, from bright sunshiny days to winter months where driving a few more miles than you’re used to could seem like hours added onto your overall commute.

Schools and recreation might be high on your needs list as well. Is there a YMCA nearby, or a recreation center you can take classes at on the weekends? Crime is another big factor for some folks, especially for those with younger children.

Finally, you’ll also want to consider the average price of a home in that area. Not only will this give you an idea of how the prices of homes you’re considering stack up, but it can be a great way to gauge how much you could potentially sell your home for later on if you do buy in that area.

Step 3: Filter your selection

One of the easiest and oftentimes most difficult ways to narrow down your search results is to filter your selections. This could be in the form of determining how many bedrooms and bathrooms you need at the very minimum, or it could be based on a variety of other factors.

Before you get too involved in your home search, sit down and make a list of the needs vs. wants that you’re looking for in a home. This could be things like:

  • Square footage
  • Attached garage
  • Large backyard
  • Single story versus multi-story
  • Distance between houses in the neighborhood

Another simple way to visually discriminate between houses is to take pictures while you’re there. What features did you like about the house or property that made it stand out? You should also visit a property more than once, at different times of the day, in order to get a full sense of what potential the property holds.

Step 4: Set up search alerts

Once you’ve picked out the main search engines you’ll use to find potential new homes, it’s a good idea to set up search alerts. These can be done on a desktop website as well as an app. Just keep in mind that if you do set up too many search alerts, the results can be overwhelming.

To make the best use of your search alerts, consider creating a spreadsheet or table that shows the basic features of a house, with a column for notes to include things like “love the backyard view” or “within walking distance of the park.” This will serve as your quick reference guide when new search results show up as well.

As you get alerts on new properties, you can also compare them to the needs vs. wants list you made previously. It’s a good idea to only keep 3-4 properties in mind at a time, so that you’re not overwhelmed by all the possibilities. Look for those homes that best meet your criteria first before you get too caught up in compromising.

Step 5: Get your finances ready

Beyond the physical details of finding a place you’d like to live, you’ll also need to consider your finances. No matter how beautiful a home looks or how wonderfully it fits all your criteria, numbers are the biggest deciding factor.

Believe it or not, you don’t have to make hundreds of thousands of dollars each year to afford a new home. In our discussion of how much house you can afford on a $50,000 salary, it’s about working what you’ve got to your advantage, and not focusing so much on your limitations but your money habits instead.

One of the first places most people start is checking their credit score. Besides your down payment and your monthly income, your credit score is one of the top determining factors in how much house you can afford, specifically in terms of what interest rate you can qualify for. Credit Karma allows you to access your credit score for free, with the additional ability to monitor any changes to stay up-to-date.  

You should also consider your debt-to-income ratio. The more available funds you have each month to go towards a mortgage payment, the better your application looks when searching for a home loan. Your income plays a huge role in this. Generally speaking, you can afford roughly 2-3 times your annual gross income (before taxes) when it comes to buying a house.

Your credit score, down payment amount, debt-to-income ratio, and income are some of the basic components that make up your financial profile. This is what the mortgage lenders will review when they’re considering you for a home loan, especially during the prequalification process. 

Step 6: Get prequalified

You’ve seen ads all over for getting prequalified for a mortgage loan, and if you’ve signed up for any real estate websites or apps, those ads are only going to continue. However, prequalification is one of the best steps you can take in order to get a better idea of how much house you can qualify for based on your financial circumstances.

It’s important to remember that even though you can technically prequalify with practically as many banks/lenders as you want, they will perform credit checks with each application. These hard checks will ding your credit score a few points, so it pays to be choosy when you’re picking out who to prequalify with.

Prequalifying requires information about your assets and income, as well as your credit score and how much you’ve set aside for a down payment. Most prequalifications are good for 2-3 months, because finding a house and then closing on it can take a lot of time. However, none of them are binding, so you don’t have to finance with a company that you’ve prequalified with if you find a better rate with another lender instead.

If numbers help you get an idea of how much house you can afford, we put together a separate guide on how much per month a $250,000 mortgage costs. This guide should give you context in terms of what other costs are involved in a mortgage beyond just your monthly loan payment.

Step 7: Consider what kind of loan you might want

Finding a home loan that suits your needs doesn’t have to start with a mortgage lender. In fact, you should consider the different types of home loans you can potentially qualify for first, before deciding who you’d like to finance with.

Here are some of the most common types of mortgage loans:

  • Conventional mortgages: These loans are conforming or non-conforming and allow sellers to contribute to closing costs to help pay for your dream home.
  • FHA loans: Backed by the Federal Housing Administration (FHA), these loans help borrowers who may not have as much money to put down on their dream home.
  • VA loans: These loans are specific to military members and their families.
  • Fixed-rate mortgages: A 30-year or 15-year loan characterizes your typical fixed-rate mortgage.
  • Adjustable-rate mortgages: Interest rates adjust periodically on this loan, which is not as popular as fixed-rate mortgages.

Once you know which types of loans you’d like to take out in order to purchase your dream home, you can then search for a mortgage lender. Before securing financing from one of these lenders, be sure they offer the terms you want to make it all happen.

Get your personalized prequalified rates on Credible
Need a home loan?
  • Credible makes getting a mortgage easy. It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter.
  • Get prequalified in just 3 minutes without impacting your credit score.
  • Compare rates from multiple lenders without your data being sold or getting spammed.
Find Rates Now

Step 8: Plan for closing costs

Closing costs on a home are the “taxes and fees” that are in addition to the price you’ll pay for a home. These costs vary from transaction to transaction, but they include some of the same individual costs across the board.

For example, common closing costs include loan origination fees, appraisal fees, inspection fees, title insurance, deed recording fees, and credit report request charges. Attorney fees and taxes can be included in this number as well. 

It’s important to know that the commission you’ll pay your real estate agent is not included in the closing costs of the property. This is because you sign a contract with the real estate agent separate from the sale of the house in order to do business. However, you should account for this in terms of final costs for purchasing your dream home. 

Closing costs vary by state as well, depending on tax rates. If you’d like to estimate your closing costs, check out Bank of America’s closing costs calculator. Input your purchase price, down payment amount, loan terms, and property zip code and you’ll get a breakdown of closing cost details, from third-party fees to interest, taxes, and insurance.

Step 9: Hire a real estate agent

Many house hunters find real estate agents incredibly helpful when it comes to navigating the homebuying market. It might feel like signing up with a salesperson who constantly bugs you about potential homes, but the truth of the matter is that a real estate agent has access to a wealth of information that could better serve you than you might first think.

For example, many real estate agents have lived in the area in which they sell homes. This allows them prior knowledge of an area that could help better inform your decision. If new homes had recently gone up in the area you’re looking in and that drove down home prices on older models, this could be potent negotiating information to achieve a lower price from the seller.

Real estate agents have typically seen the best and worst of homes as well. They know when an inspection went well and when to run, not walk, away from a property. In that aspect, their expertise could be saving you large sums of money in avoiding costly renovations and repairs down the road.

Step 10: Make a compelling offer

Making an offer on a house can be both exciting and overwhelming at the same time. Qualified real estate agents can help you through the process to make sure you’re crossing your Ts and dotting your Is so no details are left to chance.

Securing financing is the first step in creating an offer to present to a seller. Your real estate agent will ask for this before they submit an offer on your behalf. These agents should also perform comparable sale comparisons in the area, or “comps.” Houses that have already sold in the area will gauge how fair a home price is based on how it compares to what the seller is asking. This can also be a factor in the exact offer you put in as well.

Here are some of the most common fees associated with making an offer on a house:

  • Earnest money
  • Title fees
  • Closing costs
  • Down payment
  • Taxes
  • Inspection
  • Appraisal
  • Homeowner’s insurance
  • Private mortgage insurance (if applicable) 

You should also consider the commission you’ll pay to the realtor you hired. This should have been outlined in the contract you signed with them. The commission is based on the home’s sale price, and is typically anywhere from 5-6%. Again, it is not included in the closing costs of the house, but shows up as a separate charge.

Asking the seller any questions you may have about the home or property before you make an offer can help get a relationship established. Knowing what you’re getting yourself into is key to protecting your investment and purchasing your dream home. 

The Bottom Line

Buying a home takes a bit of effort when it comes to getting your ducks in a row. But finding your dream home can make the nightmare of all that legwork worth it in the end. When you finally get the keys and get to call your dream house a home, that’s when the gratification starts to flow.

We hope you’ve found this article useful in your search for your dream home. Our 10 steps are one of the best ways to set yourself up for success and stay on track as you search for properties, tour homes, and finally, move into your dream home and live your best life.

Today's Mortgage Rates - Updated Daily
  • Credible: Credible makes getting a mortgage easy. It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter through this link.
Brian Meiggs
Brian Meiggs
Founder of Smarts, Brian is an entrepreneur and investor who enjoys working out, reading, spending time with his family and friends, playing chess, traveling and creating great content. He’s passionate about helping others make smarter money moves and achieve financial freedom. He uses the free Personal Capital app to manage his cash flow and net worth.
Subscribe
Notify of
guest

0 Comments
Inline Feedbacks
View all comments