Money-Saving Tips for First-Time Home Buyers
14 Money-Saving Tips for First-Time Home Buyers
With rising rent costs and low mortgage rates, first-time home buyers, especially millennials, are quickly becoming the biggest home buyers for 2015 and 2016. As the biggest purchase you’ll ever make, here are 14 tips to save some money on your first home.
1. Sign the Third Party Financing Addendum
The Third Party Financing Addendum protects you, if say, you lose your job, the loan falls through or the appraisal value comes in under the purchase price and they fall within the agreed upon financing period in the contract, typically 21 days. Should one of these occur within this time frame, you will get the money back you used to secure the property, called earnest money and typically 1% of the purchase price.
If these things happen after the number of days indicated on the addendum, you could lose that money or be obligated to purchase the house.
2. Property taxes
Property taxes are assessed by the county you live in and average 2.32% (in Tarrant County) of your home’s value each year. These costs can be rolled into your monthly mortgage payment through escrow. If you’re looking in several different cities, pay attention to these taxes as a $250,000 house in one city could cost you more money than a $250,000 house in another. Minteer Real Estate Team has resources to let you know the tax rates in the city you are looking in.
3. Pay for an inspection
During the Option Period, you have the ability to pay for an inspection which enables a licensed inspector to provide an independent review of the property. They look at the exterior features such as outside walls, decks, roof, chimney and drainage conditions; interior items like the windows, doors, plumbing fixtures, electrical outlets and appliances; heating and cooling systems; and whether the home has adequate insulation and ventilation. If there are any major issues that arise, you can negotiate some of the repairs to be fixed by the Seller before closing. You can also decide that some of the minor repairs can be fixed by you at a later date.If you decide there are too many repairs, you can also walk away (if you are still in Option) and lose your option money, typically $100-250.
4. Shop for your mortgage
A recent study by Lending Tree found that only 14% of Americans shop around for their mortgage. Before you start home shopping, get pre-approved with a mortgage lender. But don’t stop after looking at just one lender. Researching your financing options with multiple lenders is the best way to get the lowest interest rate and best loan program for you. Saving a half point on a $200,000 home loan saves you $64/month adding up to $23,000 over the life of a 30-year mortgage.
5. Think of all the expenses associated with a home
Be prepared for any and all costs associated with purchasing and buying a home to prepare your budget. When purchasing a home, you have a down payment, earnest money, option money, home inspection, appraisal fees and closing costs. Yearly costs associated with a home are your monthly mortgage payment (included in that are your interest, property taxes, homeowner’s insurance and possible private mortgage insurance), utilities, renovations and maintenance.
6. Consider the HOA fees
You may have found your dream home in the perfect neighborhood, but look if they have a Homeowner’s Association. Most homeowner’s associations have fees that are paid monthly, quarterly or yearly. Factor that cost in to your budget to see if you can ultimately afford to live in that home.
7. Pay attention to private mortgage insurance (PMI)
If you don’t have 20 percent to put down on your home purchase, you can still get a mrotgage loan for as little as 3 percent down, which is good news for first-time homebuyers. However, if you can’t pay 20 percent down, you often have to pay for a private mortgage insurance. Private insurance is about .85 percent of your mortgage loan. Once you have reached the 20 percent through appreciation and payment, the PMI is often removed.
8. Make realistic income estimates
When you are determining how much of a mortgage you can afford, base the payment on how much you are making today. Don’t base it off a potential raise or potential income from an outside source. Create a budget for six months on the mortgage payment you are looking at and look at your quality of life. This is the best way to find how much of a mortgage you can comfortably afford.
9. Don’t be house poor
Along the lines of making realistic income estimates, it’s important to not spend more than 30 percent of your monthly income on a mortgage payment. It’s easy for many first-time and even experienced buyers to fall in love with owning their dream home and paying above their budget. But this leaves them with zero money to enjoy the things they like or have a reserve to cover any emergency things that arise with their home, car and medical bills. Don’t sacrifice your financial freedom for home ownership.
10. Choose the right mortgage for you
There are many different loan types:
- Veterans Affairs
It’s important to talk to your mortgage lender about which program will be right for you. Equally important is to discuss the length of your loan. If you can afford it, the difference between a 15 and 30 year loan may mean a couple of extra hundred dollars for a mortgage payment each month, but this can save you thousands of dollars over the lifetime of a loan. Your mortgage lender can go over the payment savings with you.
11. Pay extra
An extra mortgage payment each year or paying extra money each month on your mortgage can cut years and money off your overall mortgage loan.
12. Negotiate closing costs
Closing costs can account for 1-8% of the purchase price. Don’t be afraid to negotiate. Negotiations can be made for Sellers to pay all or partial costs and closing costs can be wrapped up into your mortgage loan. However, in a Seller’s market, it may be difficult for a Seller to agree.
13. Bundle insurance
When shopping for homeowner’s insurance, see if the insurance providers have any good packages. You may save money by bundling your homeowner’s, auto and any other insurance. Make sure you’re not sacrificing coverage but bundles can help you save hundreds of dollars each year.
14. Study the market
See how much homes are selling for in the neighborhood(s) you are looking at. This will help your expectations as you enter the real estate market and will help you through negotiations. Our Buyer Specialists study the market each day and can help you make informed decisions.
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