3 Ways to Save Money on Your Home Purchase
First-time home buyers and seasoned buyers alike often pay far more than they should. The problem lies in the fact that they often have tunnel vision. As long as they get what appears to be a good deal on a new home, they are satisfied. The problem here is that there are all kinds of additional costs that come into play when buying a home. Without being careful, it’s easy for a person to bite off way more than he can chew. There are some surprisingly simple ways to spend less when buying a new home. By keeping them in mind, anyone can save money while making this major purchase.
Get an Affordable Mortgage
One of the biggest mistakes that a home buyer can make is to apply for a mortgage with a single lender. Most people shop around when buying car insurance and when making other, smaller purchases; doesn’t it make sense to do the same thing when buying a new home? After making an offer that’s actually accepted, though, people are often anxious to speed through the underwriting process in order to get to the closing table as quickly as possible.
A few ways to get the most affordable mortgage possible include:
Apply for Loans with Multiple Lenders – Pinpoint at least three lenders and apply for mortgages with all of them. Let each lender know that you are considering a few other options too. This will motivate them to make the best offers possible.
Have Good Credit Scores – Whenever possible, a home buyer should wait until his credit is in excellent shape before applying for mortgages. This will allow him to take his pick from much more attractive options and make it easier to get a very competitive interest rate.
Be Realistic – Many lenders learned little or nothing from the mortgage crisis and continue to try to pressure home buyers into taking out larger mortgages than they can afford. Before applying for a mortgage, sit down and figure out an affordable amount. It may also be worth it to sit down with a financial analyst to zero in on a realistic figure too.
Avoid Private Mortgage Insurance
Most people understand that things like property taxes and homeowner’s insurance premiums will be rolled into their mortgage payments. Without making a down payment of at least 20 percent, an additional fee will be rolled in: private mortgage insurance, or PMI. This fee is typically equal to 0.5 percent of the total value of the loan. It kicks in when the loan-to-value ratio is above 80 percent.
There is absolutely no benefit to paying PMI. It is an extraneous expense that increases the cost of buying a home. The easiest way to avoid it is by saving up a down payment of at least 20 percent. Another option is to take out a separate loan to make the down payment, but that loan should be repaid quickly. A third option is to take out two separate home loans: one that is equal to less than 80 percent and another that covers the balance.
Be Savvy about Closing Costs and Other Fees
In the excitement of buying a home, people often gloss over the closing costs that they’re told to pay. Lenders won’t voluntarily tell people that these fees are negotiable, but they often are. The first step to figuring out ways to cut closing costs is by requesting a Good Faith Estimate, or GFE. This document includes a line-by-line breakdown of the fees that will be charged at closing. Third-party fees can’t be negotiated with the lender, but everything else is fair game. Examples include document fees, title fees and loan application fees.
Third-party fees can be negotiated too, but a little more work is involved. Lenders often offer to help home buyers find homeowner’s insurance policies, but it’s much better to track down this coverage separately. Request quotes from a few different companies to zero in on the most affordable homeowner’s policy possible. Similarly, appraisals and inspections can vary in cost considerably. Shop around for these services to find the most affordable options. If the lender is going to charge to run a credit report, a home buyer can get a free copy online and supply it himself. All of these things really add up and can result in significant savings.
When buying a home, getting a great price is half the battle. By taking a methodical approach to acquiring a loan and being careful about closing costs, any home buyer can save considerable amounts of money.
Becky Flanigan is a former real estate professional with over 13 years of experience. She current writes at charlesbarnes.com as well as other sites. She has taught many online real estate courses and is committed to offering sound, real life advice. When she is not writing, she loves to be outdoors and travel with her husband and 3 beautiful girls.