Look, I have bought more than my fair share of houses (3 in 15 years! woohoo!) and I’ve learned How to Save Money when Buying a House and putting the money where it counts.
Buying a house is a big step in our lives.
Seriously, it’s one of the biggest financial decisions we will ever make–and each investment is just as meaningful as the last.
If you’re thinking about taking the plunge and becoming a homeowner, you may want to think about some basics to help you save money when buying a house so you can pay it off sooner or get a better home for your budget.
How to Save Money when Buying a House
High Credit Scores are In. The best thing you can do to save money when buying a house is to getting your credit score in order first. The higher your credit score, the lower your interest rate will be and the less you will spend on your home in the long run. This is serious stuff and don’t joke around with it. The difference between one late payment can mean the difference between $200 or $500 a month on your payment. It’s SERIOUS. So, to get your credit scores down, make all payments on time, don’t keep high balances on credit cards–and for the love of all that’s credit, if there’s a mistake on your score, get it fixed.
Big Down Payments are In, too. Save up a nice sized down payment before you go buy a house. This will save you money in the long run by allowing you to borrow less money from your lender. Shoot for 20% down at a minimum so that you can avoid paying PMI (private mortgage insurance). This can be a significant amount (like $300-500 a month), so if you can wait and save up 20% of the value of your dream home, you can avoid paying that chunk monthly.
Not all Mortgages are the Same. Shop around for your home mortgage loan. Look for the one that will give you the best interest rate and payment terms. The lower the interest, the faster your loan will be paid off, and the less you will pay for your home in the long-run. And it’s also fair for you to tell the lenders that you’re not just looking at them– let them know you are comparing rates so they are more likely to offer you the best deal they can. Again, that rate is all-important and you’re going to be stuck with it for the duration of the loan (be that 30 years, 10 years or 5 in my case).
Warranty. Warranty. Warranty. Purchase a home warranty when you buy your home. Better yet, make sure that the seller is purchasing a home warranty in your name. Often, things that will go wrong will happen early as everything settles. A home warranty will save you money on repairs of things that break in the first few months in your new home. You may not think this is the case, but even with new homes or old homes, you could end up with a slab leak or a broken dishwasher in just the first year–and the home warranty will keep you from bearing the brunt of that cost.
Extra Cash from Cashing Out. If you are selling one house and buying another, you have some options. Options you really need to think about before you just plunge right in to rolling over your gains from the sell into the purchase. If you’re cashing out a lot of money, you should think about your credit cards and other debts. If you have credit card debt you’re carrying, you can pay that off with your gains, allowing you to lose those high interest rates on the cards and swap for the lower interest rate on the house. It’s not a perfect idea, but this kind of creative thinking could save you quite a bit of money in the long-term.
Some other creative ideas come in longer-term kind of planning. For example, make a point to take extra money like tax returns and put it into your mortgage to pay it off sooner and reduce your overall interest.
And if you do make extra payments, be sure to let them know to place the extra payment directly toward the principle instead of the general loan–that way it brings down the amount you’re paying in the long term instead of just knocking off a little interest. Most lenders will put the payments into the interest first if you don’t specify.
If you enjoyed learning How to Save Money on Buying a House, be sure to pin it, so that when you’re ready to take the plunge into homeownership, you can find these tips again!