Of course, everyone wants to get the best deal possible when searching for a home. First-time home buyers can find the home-buying process as nerve-racking. Even if you don’t have plans to buy a house soon, you have probably thought about saving for a down payment. Unlike retirement saving, where it can take years to access the stashed cash, a down payment is a large sum of money that an investor will need to obtain soon. It involves setting aside some money and investing it in bonds or stocks won’t pay back. Here are smart ways people can save money while purchasing their dream home.
Transact via an Experienced Real Estate Agent
You may have informed yourself on the process of buying a home, but as a first-time home buyer, there will inevitably be something you missed. An experienced real estate agent can help save a lot of money and time. As Colleen from Income Realty mentions, they can help not only the first-time home buyers but also the more experienced investors. Their experience in purchasing new homes is vital for ensuring the process is smooth and getting the best deal. While some investors will opt not to involve a realtor in their home buying process, this can hurt more than it can reward. After all, it’s not the buyer who pays the commission to the real estate agent; instead, it’s the seller who does. Sellers expect any buyer to have a real estate agent so that an investor can include their agent commission into the contract. A realtor can help a first-time home buyer negotiate various aspects of their agreement to protect their interests and increase their savings. You can get referrals to realtors near you from family and friends or online sites.
Boost Your Credit Score
Your loan limit will depend on how high your credit score is, so lenders interest and fees are tied to your credit rating. Borrowers can do a few simple things to improve their credit score before applying for a home loan. For example, paying down your credit card balance can help increase your credit utilization ratio. It accounts for a significant percentage of your overall credit score, and only loan repayment history has a higher impact on your FICO score. Borrowers are recommended to keep their credit utilization ration below 15% of their credit score. Borrowers should also refrain from applying for new credit or loans because hard inquiries and new accounts make up 10% of their credit score. The credit score of a borrower will probably drop for a couple of months if they apply for a new loan. As such, it’s best to hold off on opening a new account if you’re planning to apply for a mortgage soon.
Apply for the Right Type of Mortgage
Some home loans have better repayment programs than others. For example, veterans qualify for a mortgage even without the need to pay for mortgage insurance or put any money down. Low-median income earners may also be eligible for USDA, especially when buying a home in a metropolitan area. Insurance on these loans is lower than other home loans, and it doesn’t require a down payment, and it can help home buyers save thousands of dollars in the long run.
Ask Loan Quotes from Multiple Lenders
Interest rates on home loans tend to vary across lenders, so it’s crucial for home buyers to get loan quotes from at least three mortgage companies. The lender may also ask you to pay others fees such as for loan application, loan origination, and processing mortgage. Either way, loan estimates will help see the charges fees. You can also use these loan estimates to negotiate lower rates and prices with a potential lender and contact different loan officers to find the best deal.
Look for a House that doesn’t Need Upgrade
Of course, first-time home buyers want houses that need less repair work. However, the problem is that everybody wants a house that will cost them less, and a house that has a lot of custom features and upgrade can cost more than a home that needs little repair work. Finding such an apartment in a competitive real estate market can save you a bunch of money that can be used elsewhere. Adding custom features and upgrading the kitchen is relatively cheap and easy to do. Moreover, adding a personal touch and painting walls can be rewarding as well as cost-saving.
Set up a 20% savings Program for the Down Payment
You’re likely to be stuck paying for a home loan insurance unless you save a 20% down payment program. However, private mortgage insurance is a policy that covers the home loan itself, and the insurance will reimburse the lender for the funds lost if the borrower defaults on the loan. Home loan lenders will require borrowers to obtain an insurance cover regardless of the amount of their down payment. However, one drawback of home loans is that the insurance policy will only cover the borrower for the life of the mortgage. Many borrowers are likely to refinance out of a home loan once their LTV ratio drops below 78%.
Purchase a Home at the Right Season
The time of the year can also dictate the price for houses. Houses are often expensive during the summer and spring seasons because this is the time every buyer is in the market. Waiting to buy a cheap house and land in the fall or winter can help save a lot of money.
Set up an Automated Savings Plan
Unless you’re a smart saver, and most people aren’t, you will need an automated savings plan. Besides your 401(k) plan, home buyers will need to allocate a percentage of their income into a money market account or savings account and let it accumulate until it’s enough for making a down payment. Savings plan not only makes saving invisible but also automatic. You won’t even notice when money moves from your paycheck to your money market or savings account, and it will help eliminate the temptation to spend the money elsewhere. Buying a home can be a long, tedious process that requires saving a chunk of money. As such, home buyers will need to plan for their finances and extra expenses that might pop up down the road.