Are you concerned with all the costs associated with buying a home? Here are 15 ways you can save money on the purchase of a home.
Are you looking to buy and wondering how to save money on a home. There are multiple ways you can save. You can save money on the home itself and you can save on the home buying process as well. The process of buying a home is costly. There are a lot of upfront costs that people don’t really talk about. You’re not only required to pay the down payment. There are a lot of upfront costs that you will have to pay for while you are going through the home buying process.
When most people think of the upfront costs of buying a home they think of the down payment, furniture and maybe closing costs. Unfortunately there are numerous upfront costs and hidden fees associated with buying a home. Most of these costs do not get discussed until you’re actually in the process of buying your home.
In addition to the down payment some other upfront costs may include:
- Closing costs
- Home owners insurance
- Household necessities
- Application fees
- HOA fees
The process of buying a home can be frustrating especially because there are so many upfront costs associated with purchasing a home.
It is really important to understand all of the costs that come with buying a home. If you only save enough money to cover the down payment you will not have enough to complete the purchase. Also, I don’t recommend draining your entire savings in order to buy your home. If the costs keep adding up and you realize that your savings will be depleted, this may not be the best time for you to buy. I recommend waiting until you have some more money saved before purchasing.
If you’re feeling defeated please read on. The purpose of this post is to inform you of the costs of buying a home. My personal goal is to help first time home buyers be prepared for the home buying process. I want to be upfront and honest with you so you are prepared when you decide to buy a home. The good news is that I’ve found several ways to save money on a home as well as ways to save throughout the home buying process.
Now let’s get into ways to save money on a home
1. Research and apply for first time home buyer programs
If you are thinking about buying a home you should look into first time home buyer programs. These programs can definitely save you some money. First time home buyer programs can offer assistance with down payment and closing costs. These can be in the forms of forgivable grants or low to zero interest rate loans. These programs are not just for low-income families. They can also apply to moderate-income families so I highly recommend researching these programs.
If you are ready to buy a home I recommend going to a mortgage broker who works with these programs. Mortgage brokers want your business so they will meet with potential clients just to answer questions. You can set up a meeting with a mortgage broker who works with these programs to see if you are potentially eligible to any first time home buyer programs.
It’s also important to know that first time home buyer programs do not exclude you if you have previously owned a home. In my area, these programs apply to anyone who has not owned a home in the last 3 years. Again, do your research. You can find first time home buyer programs on the local, state or federal level so hopefully you can find a program that works for you.
2. Research employer or union discount programs
If you work for a large company you may have access to certain employer discount programs. I will use my employer as an example. We are part of the Coastal Housing Partnership. This programs offers a lot of incentives for us as employees. Some of the incentives include closing cost contributions, lender contributions for mortgage refinance and reduction in market rent on new leases.
My husband and I were able to take advantage of the closing cost contribution. We were able to get a few thousand dollars to go toward our closing costs. It was a big help and saved us money upfront.
If you are part of a union you can do some research to see if you union offers any discounts or incentives for home buyers. My union offers an incentive for using a specific bank as your lender. It doesn’t hurt to ask around and see what benefits your employer or your union might offer.
3. Credit union incentives
Credit unions are great for so many reasons. One of those reasons is that they can offer certain incentives if you choose to use them for your home loan. Credit unions often, but not always, offer lower interest rates. They are also, typically, much smaller banks so they have a bit more freedom. Our credit union was able to waive the application fees for the loan because they wanted our business. I mention interest rates quite a few times throughout this post because that is a key factor when you’re researching how to save money on a home.
4. Shop around for the best rates
If you are ready to start the home buying process the first step is getting pre-approved. If you are not sure that you’re ready to buy check out my How to Know if You Are Ready to Buy a Home blog post linked HERE. When you are ready to get pre-approved I highly recommend getting pre-approved by 3 different lenders. Multiple pre-approvals will not negatively affect your credit score as long as they are all done within a 2 week time span.
The reason I recommend getting 3 pre-approvals is so you can compare the rates. Interest rate matters. Paying more in interest, even as little as .01% will make a huge difference in the amount you will pay over the life of the loan.
5. Put a higher down payment
If you put less than 20% down on a home you will have to pay private mortgage insurance (PMI). To avoid PMI you need to put down at least 20% of the purchase price. For a $400,000 that would be $80,000. That amount does not include any other upfront costs that come with buying a home. PMI is added to your mortgage every month and it could be upwards of a few hundred dollars. If you are able to make a larger down payment and avoid the PMI that is ideal.
Now I know this is not always practical. In fact, if you live in an expensive area like southern CA a down payment of 20% can seem unattainable. Luckily there are loans that will allow you to put less money down, as little as 3%. Just remember that you will have PMI added to your mortgage so make sure that you can afford the mortgage rate along with all taxes, home owners insurance, PMI and interest.
6. Compare loan types
The type of loan you choose can affect how much you save as well. If you’re eligible to a VA loan you can save a ton of money upfront because you are not required to put a down payment on your home. For an FHA loan you can qualify with a lower credit score but you will have to pay PMI for the life of the loan. A conventional loan usually requires a bit of a higher down payment but you can eliminate PMI after you have 20% equity in your home.
Talk with your mortgage broker and compare the different loan types and find what will work best for you. If you don’t plan on being in a home very long it may be more beneficial to go with the FHA loan. That’s because you will not be there long enough to get the 20% equity necessary to eliminate PMI on a conventional loan. Be sure to weigh the pros and cons of the different loans before you choose.
7. Have a credit score of 740 or higher
Let me be clear, you do not need to have a credit score of 740 or higher to buy a home. However, the higher your score is the better interest rate you will receive. Typically a credit score of 740 or higher is always eligible to the best interest rates so make that your target credit score. As I mentioned before interest rate makes a big difference. If you can, try to wait until your credit score is 740 or higher before purchasing a home. If you need tips for raising your credit score I will link my How to Raise Your Credit Score blog post HERE. In that post I detail the steps I took to raise my credit score over 100 points and was able to qualify for a home loan.
8. Find an experienced real estate agent
This is so important. Having a good relationship with your agent is important. You want to feel comfortable with them and feel free to express your feelings openly. It’s also important that your agent be very experienced. If you decide to go with a newer agent make sure that they have a good company behind them that can offer support and guidance when needed.
An experienced agent can help you make sure that you’re not over paying for a home. Also having a well-known and respected agent can help when you’re in a competitive market and you’re competing with multiple offers. Although agents do not work with the financial side of buying a home I found that my agent was able to give good advice that ended up saving us money.
More ways to save money on a home…
9. Look outside popular areas
To save money instantly on a home try looking outside of the most popular areas. I know it can be tempting to be close to certain popular neighborhoods but that will cost you more. When you buy a higher priced home not only does your mortgage increase but closing costs fees and even the down payment amount can increase as well. Be open to looking in other areas, maybe up and coming areas to save some money upfront. Ask your agent if they know of any up and coming areas near you. An up and coming area might get you a higher return if you eventually decide to sell the property.
10. Stay away from turnkey homes
I know I know, turnkey homes are so tempting. Being able to simply move in and start your new life sounds amazing. The fact is turnkey homes will cost you more. Turnkey homes are often highly sought after so if there is a bidding war you may end up paying more for the home than it’s worth. You don’t have to buy a complete fixer upper to get a good deal. If you’re really looking for how to save money on a home this is one of the biggest money savers. Look for a home that needs a little work but something that you’re comfortable with. If there are minor issues that you don’t mind fixing over time you can save some money upfront and fix up the home on your time.
11. Don’t feel pressured to over-pay for a home
If you’re looking at a home that has multiple offers you may be tempted to increase your offer to stand out. Remember, every time you increase your offer you are going to pay more upfront and pay more over the life of the loan. If you really love the home and you’re financially prepared enough to increase your offer that is your choice to make. I just want to stress the fact that it can get really tempting to increase your offer and you may feel pressured when there are multiple offers. Don’t let this pressure get to you.
Make the decision based on your financial situation. If you end up losing the home because you don’t want to increase your offer that’s okay. There will be more homes. This is one of the biggest purchases you will ever make so make sure you are being financially responsible.
12. Shop around for homeowners insurance
Homeowners insurance is another upfront cost that you will pay. You will pay for the first year insurance premium with all the other upfront costs of buying a home. You get to pick your homeowners insurance so get quotes from several companies and compare the rates. Your required coverage may vary depending on the type of home you purchase so the rates can vary greatly. You can also try bundling your home insurance with your car insurance to get a discount.
13. Ask for credits or discounts for errors
The home buying process can be long and strenuous. There are so many people involved and so much paperwork which means there is a lot of room for error. If you end up with a mortgage broker or lender who is making a lot of errors, costing you more money or extending your escrow timeline you can ask for a discount or credit. They may not give it to you but it doesn’t hurt to ask.
I know from experience that it’s worth a try. My husband and I had a terrible mortgage broker who turned our 30 day escrow into a 75 day escrow and almost lost us our home several times. Because we had such a bad experience we asked for a discount. The mortgage broker ended up waiving all of his fees for our transaction which saved us some money upfront. I hope no one else has a terrible escrow like we did but if you do come across issues just know that it’s okay to ask for discount.
14. Negotiate closing costs
Did you know that you can negotiate closing costs? Neither did I until we bought our first home. Essentially mortgage brokers and lenders want your business. They are willing to negotiate certain fees if it means they will get your business. You can also choose your escrow company. One will be assigned to you but you have the option to choose your own so feel free to shop around and compare fees.
15. Negotiate with the seller
Everything is negotiable. When you are purchasing a home you can write almost anything into your offer. You can ask the seller to leave certain appliances or furniture. You can ask them to pay all or part of your closing costs. After the inspection you will have another opportunity to negotiate. If the inspector finds issues with the house you can negotiate that the seller either fix the issue or give you a credit so you can fix the issue. Now, just because you ask doesn’t mean you will receive. But it doesn’t hurt to ask right?
There you have it. 15 ways to save money on a home
Some of these can save you money right away, some can save you money over time and others can do both. As a recent first time homebuyer I have done most of the things on this list.
The best advice I can give to someone purchasing a home is to be prepared. Do your research, have a good amount of money saved, get that credit score up and only buy when you are prepared financially and mentally.
If you want to learn more about first time home buyer programs check out this post by Nerdwallet linked HERE
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