When buying a new home, it can feel like there’s an endless amount of information to keep in mind, from choosing the ideal neighborhood and finding a mortgage to figuring out which furniture will make the cut. We want to help you make homebuying a painless experience now—and help you reduce bills in the long run.
Besides getting a good deal on a house there are many other things that can save you money. In this article we’re going to explore the different ways to save money when buying a house.
1. Start Saving Immediately
Even before you decide to buy a home, you’ll thank yourself for putting some money into a designated new-house fund. The common wisdom is to save about 20 percent of your future home’s value. This is a good down payment and will help you avoid private mortgage insurance, which can cost between .5 and 1 percent of the loan amount. Twenty percent might sound like a lot, but if you put away $50 to $100 every month, you’ll get there quicker than you expect..
2. Have 20% Saved for the Down Payment
Unless you’re coming to the table with a 20% down payment you’re going to be stuck paying for mortgage insurance. Private mortgage insurance (PMI) is insurance on the mortgage loan itself. If a borrower defaults on the loan, the lender is reimbursed for the funds lost. FHA loans will require mortgage insurance regardless of the amount of your down payment. One of the drawbacks of FHA loans is that mortgage insurance is usually required for the life of the loan. May people will refinance out of an FHA loan into a conventional one once their LTV ratio is below 78%
3. Increase Your Credit Score
The higher your credit score the cheaper your loan will be. Lender fees and interest rates are tied directly to your credit rating. There are a few simple things you can do to improve your credit score quickly before applying for a mortgage loan.
Pay Down Your Credit Card Balances
The balance on your credit cards vs the credit limit is called you credit utilization ratio. This ratio accounts for 30% of your overall FICO score, only your payment history (35%) has a higher impact on your credit rating. It’s recommended to keep your balances below 15% of your credit limits to maximize your credit score.
Don’t Apply for New Loans or Credit
New accounts and hard inquiries make up 10% of your credit score. When you open a new account your credit score will take an initial drop for a couple months. When you know you’re going to be applying for a mortgage in the near future it’s best to hold off on buying that new car or credit card.
4. Shop Around for a Mortgage Rate
When it comes to choosing a mortgage, you have more choice than you might think. Mortgages can differ significantly from firm to firm, so we recommend looking into roughly five firms—more if you have time. Learn about the range of loan options (a shorter-term loan may have higher monthly payments, but you will likely pay less interest) and explore rates. Even saving only half a percentage point can net tens of thousands of dollars over the years.
5. Get Other Opinions
When you find the “perfect” house, it’s easy to get caught up in the excitement and miss out on little issues that could become costly. Gather experienced family and friends to tour the property with you. They may help identify and solve potential problems ahead of time, instead of letting you discover them yourself after the honeymoon period.
6. Negotiate in the Beginning and the End
You can, and should, negotiate everything when buying a home. Haggle over the price and present a counteroffer, making sure your numbers are reasonable so you don’t risk offending the owner.
Closing costs are another important area for compromise. Your expenses from the credit check, loan origination fees, title insurance and appraisal fees typically add up to between 2 and 5 percent of a home’s purchase price, depending on where you live. Your lender may cover a chunk (or all) of the bill, so it’s definitely worth asking.
7. Don’t Rush into a Property
You might want to jump at a house for a variety of reasons: Maybe you’re expecting, or it has the most amazing kitchen you’ve ever seen and you don’t want someone else to snag it first. However, we recommend taking the time to research neighborhoods and give due consideration before signing along the dotted line.
8. Find a House that Needs some Work
You are probably looking for a home that is going to sweep you off your feet and doesn’t need any work. The problem is, so is everybody else. Homes that have lots of upgrades and custom features will cost much more than a home that needs some love. Finding that diamond in the rough can be a great way to save a bunch of money. Adding custom fixtures and lighting is relatively easy to do. Painting walls and adding your own personal touch can be very rewarding while saving you cash
9. Purchase a Home in Winter
Spring and Summer months often demand the highest prices because this is when most consumers are in the market to purchase. Waiting to buy a home in the winter months can save you as much as $20,000 according to NerdWallet
10. Conduct Your Own Inspection.
Paying attention during the home inspection is critical. Be sure to take notes, ask questions and watch what the inspector is doing, but don’t rely solely on that report. Go through the home yourself, and get to know the property more thoroughly. You might spot broken or unusable appliances, for example. If you do, ask the seller for a credit so you don’t end up fronting the cost for a new fridge during your first week in your new home.
11. Be Picky with Your Homeowners Insurance
As with mortgage rates, there are more options than you might suspect. However, the cheapest one isn’t necessarily going to be the right fit. Evaluate all of your choices to find the rate and policy that are best for you. One of our favorite tips? Consider bundling homeowners insurance with your other policies, as some insurers offer discounts for this practice.
Paying attention during the home inspection is critical. Be sure to take notes, ask questions and watch what the inspector is doing, but don’t rely solely on that report. Go through the home yourself, and get to know the property more thoroughly. You might spot broken or unusable appliances, for example. If you do, ask the seller for a credit so you don’t end up fronting the cost for a new fridge during your first week in your new home.
12. Assess the Property
In case it isn’t yet clear, when it comes to reducing home expenditures, we recommend double-checking everything. A number of factors could be inflating your home’s value, and examining how the value was initially determined could help reduce your taxes, making your annual bill feel a lot more wallet-friendly.
Paying attention to details and taking the time to do thorough research can help you avoid stress and save money throughout the homebuying process.
