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According to the Federal Reserve, the average selling price of a home In the third quarter of 2020 is $387,000. Couple that with Census Bureau data showing the 2019 median household income in the United States at $68,703, and it becomes clear that buying a home right now is a serious financial challenge for almost all American families.

Let’s break that down a bit. Currently, a 30-year fixed-rate mortgage can be found at around 3% for a person with good credit. Even without private mortgage insurance (PMI), a 30-year fixed-rate mortgage for the average sale price of an American home comes with mortgage payments of $1,660 per month. However, monthly mortgage payments aren’t the only costs you should consider. If you don’t have 20% down, you’re adding PMI to that. You’re adding homeowners insurance to that. You’re adding property taxes to that. You’re adding homeowners association fees to that. You’re adding the cost of maintenance and utilities to that.

With the median household only making $69,000 a year before taxes, most families are going to be hard-pressed to even buy the average American home and be able to afford to live there. To make it work, they’ll have to stretch their budget tight, with little wiggle room.

One solution to this problem is to keep renting, but that’s not a great solution for many people, either. Many rental markets have limited availability of properties with more than a couple of bedrooms and the prices can be quite high. 

So, what’s the answer for someone who wants to buy a home in the face of numbers like this? Here are six key strategies you should think about if you’re considering buying a home in this climate.

In this article

Shop around for mortgage rates

The first strategy to consider is simply shopping around for better mortgage rates. If you’re taking out a $400,000 30-year mortgage, reducing that rate from 3.25% to 2.75% reduces your monthly payment from $1,740 a month to $1,630 a month. That’s more than $100 a month, which is enough to cover most of a homeowner’s insurance policy on a home of that size, a significant portion of property taxes or most of PMI.

One effective tool you can employ if you’re shopping around for rates is to use a mortgage broker. They help you find a good rate for your mortgage and are paid by commission by whichever lender you end up signing with.

[ Read: The Best Mortgage Rates ]

You can also simply shop around by collecting offers from local banks and credit unions as well as online lenders.

Improve your credit score

One thing that may stand in your way in terms of being able to get a great mortgage rate is your credit score. If you have a poor credit score, lenders often won’t give you the best interest rates (and may not lend to you at all).

There are several simple things you can do to improve your credit score. One is to review your credit report (which you can do for free via the federal government) and make sure it’s completely accurate. Another is to make sure you pay your bills on time. Paying down some of your debts and keeping your credit cards all below 50% of their credit limit at most can also help you increase your credit score. Also, don’t close any of your credit card accounts, especially your oldest one.

Taking these steps will quickly improve your credit history, which will result in lenders being more willing to offer you competitive mortgage rates.

Look for less expensive areas

Another tactic is to consider the lower cost of living areas. If you live in an area where property values are high, moving to another area can make it easier to find an affordable home.

For example, you might choose to move to one of the most affordable suburbs in the United States or you might aim to move to a state that has a strong contingent of financially responsible people. These choices are likely to put you in places where it’s easier to make ends meet, particularly if there are also career opportunities there for you.

[ Next: Most Affordable Big Cities in the U.S. ]

You can start this process by considering your life options. Where could you move and still be employed by your current company? Where could you move and easily find work in your field? Where could you move and be happy? If those considerations point you to a number of options, start considering whether they also offer a lower cost of living than where you currently live.

Look at a smaller home

Considering smaller homes can also help you make the leap from renting into homeownership or into a new home. 

Over the last forty years, the size of the average newly constructed home in America has increased by 150%. Meanwhile, the number of residents in the average home has actually gone down. Why? Americans have a desire to have more space for stuff

Moving to a smaller home can seem like a challenge, but it can also be uplifting. Be sure to consider all your options when it comes to living in a small home.

Look at a fixer-upper

Another option to consider is to buy a home that needs some work done to it. After moving in, you may need to refinish a bathroom or basement, entirely redo a kitchen or replace some carpeting, but those tasks can easily be done over time rather than in a mad initial rush.

Include homes in your search that are flawed in some areas where those flaws come with a lower sales price. Most home flaws — things like an outdated kitchen or old carpets — can easily be fixed later, either with your efforts or by hiring people for a small project, and you can do them when you can afford to.

Keep saving for a bigger down payment

A final strategy is to just keep saving. You don’t have to buy right away if it’s going to put you in a situation where you’re struggling to pay the bills or you’re living in a home that you’re unhappy with. Focus instead on minimizing your expenses as much as possible, like paying off the high-interest debts you have and putting money aside for a large down payment.

If you’re hoping to buy within the next five years, the safest and smartest move is to just stow your money in an ordinary FDIC-insured savings account. Your money will be safe, it’ll earn a small return and it won’t lose value along the way.

[ More: How to Save for a House Down Payment ]

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