September 29, 2016

5 Easy Ways to Save Money Buying a Home

Buying a home consumes a lot of time, energy and most of all – MONEY.  It is a daunting task but once you are comfortable that owning your home is right for you there are some simple but important steps you should take to make sure you don’t spend more than you have to in the purchase process.  Remember that transaction costs (the expenses related to buying a home that don’t actually go to paying for the home, like brokers, taxes and lawyers) can be as much as 5% of the home value and add up quickly. 

Follow the tips below to make sure that burden is as small as possible:

1.   Buy from a position of strength.   The easiest way to minimize the cost of homeownership is to qualify for the cheapest mortgage available.  To do that you need good credit scores, target a credit score of greater than 740. You should also be able to put down 20% of the home value as a down-payment.  If you put less than 20% down you will almost certainly need to purchase mortgage insurance.  Mortgage insurance, often referred to as PMI (Private Mortgage Insurance), increases the upfront cost and also the monthly payment of a loan.  The big problem with PMI is that you are paying for an insurance policy that benefits the bank (if you stop paying you mortgage the insurance policy ensures that the lenders are paid).  If your credit score is less than 740 and you are not able to put down 20% you should consider saving some more and working on your credit before buying a home.

2.   Everything is negotiable.  We all know that the price you pay for your home is negotiable but keep in mind your mortgage interest rate, legal expenses, broker fees and other transaction expenses can be reduced also.  As with many things the best way to achieve lower costs is to shop around and be armed with information on what others vendors are charging. 

3.   Do your homework.  Make sure you understand the decision you are making.  You are going to be in your home for a while, which means even seemingly small expenses can make a big difference.  Before you commit to a particular home make sure you have taken into account the Real Estate taxes, maintenance expenses, homeowners’ insurance and others fees that may be associated with a condo, co-op or homeowners association (HOA).

4.  Hire a home-inspector.  This is a must-do.  The home inspection report will tell you if there are any problems with the home and prevent you from walking into a financial disaster.  Remember to get a certified home inspector, this should cost around $500 but could end up saving you thousands.

5.  Take advantage of Expert Online Advice – SmartAsset.com.  We recommend doing as much online research as you can. We think SmartAsset is by far the best free resource for understanding how much house you can afford, what mortgage makes the most sense and how to save money in the process (we’re biased though, we’re on the SmartAsset team!). There are lots of articles and tools available online and as always some are better than others. Whichever resources you use it is important to seek independent advice; we note that many financial calculators have been shown to have a bias towards home-ownership.  SmartAsset’s mission is to give you straightforward, objective advice on buying a home, personalized for the decision you are trying to make. Take a look at http://smartasset.com and let us know what you think.