So you’re buying a home and want to get the best deal possible. Besides negotiating a good price (the obvious path to savings), there many other ways you can save money. In this article, we will explore some of the less obvious ways to save money when buying a house.
Use an Experienced Local Real Estate Agent
A good Realtor will save you a lot of time, money, and heartbreak. Their experience in the home buying process and real estate contract expertise is vital for getting the best deal on a home and ensuring the process goes smoothly. When things go off track in a transaction, it gets expensive very quickly. And when the inspection process isn't handled well, it could cost tens of thousands of dollars in unforeseen repairs that are suddenly your responsibility.
While some first-time buyers may try to save some money by not using an agent, this will hurt more than help. In fact, you, as the buyer, do not pay the commission to the Realtor; the seller does. A Buyer's Agent commission is figured into the listing contract; Sellers expect buyers to have their own agent and plan from the beginning to compensate them. A real estate agent will negotiate multiple terms in addition to the price to protect you and save you money.
Get Loan Quotes from Multiple Lenders
Interest rates will vary from lender to lender, so it’s recommended you get loan quotes from at least 3-4 different mortgage companies. Lenders charge various other fees for processing a mortgage, loan origination fee, loan application fees, etc. In the loan estimate, you will be able to see the fees charged clearly. Not only can you use these loan quotes to help you negotiate lower fees and rates, but they give you a chance to speak with different loan officers to see who you’re the most comfortable with.
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 to protect the bank in the event that 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 and one of the drawbacks is that mortgage insurance is usually required for the life of the loan. Conventional loans require mortgage insurance when the down payment is less than 20% and can be removed in most cases (upon written request) once the loan is paid down to 78% loan to value.
Increase Your Credit Score
The higher your credit score, the better rate and terms your loan will have. Lender fees and interest rates are tied directly to your credit rating. You can do a few simple things 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 your 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 of months. When you know you’re going to be applying for a mortgage soon, it’s best to hold off on buying that new car or credit card.
Find a House That Needs Some Work
You may be looking for a luxury home that will sweep you off your feet and doesn’t need any work. The problem is, so is everybody else. Homes with 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 money. Updating hardware, fixtures and lighting is relatively easy to do. Painting walls and adding your own personal touch can be very rewarding while saving you cash.
