How To Save Money When Buying a House
Buying a home is one of the best ways to save money in the long run. Each year, housing prices increase, while the average household income remains fairly constant. If you’re renting, you get the brunt of the inflated cost of living. Homeowners have more control over their annual costs, don’t have to deal with a landlord, and have a guaranteed monthly payment. Luckily, there are also several tips and tricks that can help you save money when buying a house.
Home Inspections Are Your Friend
Think you’ve found the perfect future home? It’s always best to have a second, professional opinion. Inspectors are trained to look for issues that the average home buyer may not be privy to, and these overlooked problems may end up costing several thousand dollars down the road. Before closing on a house, make a list of any issues the inspector caught and decide whether the repair costs are worth it. It’s also worth speaking with your REALTOR(R) to negotiate with the seller. Sometimes the cost of repairs can be deducted from the listing price, or the seller will agree to make the repairs prior to closing.
Better Credit, Better Loans
Having a good credit score makes it easier to qualify for better loans. Lender fees and interest rates are based on your credit history, so taking the time to build your credit with a few best practices will help you save money once it’s time to talk to lenders. Make sure your balances stay at or below 15 percent of your credit limit. This credit utilization ratio accounts for 30% of your overall score, so use your cards sparingly while hunting for your new home. Additionally, applying for new credit cards or loans decreases your credit score and leaves hard inquiries on your account. Lastly, keep up your good payment history.
Avoid Paying PMI
If you borrow more than 80 percent of your home’s value, lenders usually require you to pay private mortgage insurance (PMI). This is an added expense that provides protections to the lender. The average cost of PMI is anywhere from .5 to 1 percent of the total loan amount. This can get pricey, depending on the size of your loan, so avoiding PMI is an easy way to cut back on your annual expenses.
The simplest way to bypass PMI is by making a 20 percent down payment. Whether this means taking additional time to save or moving your search to a lower price range, having a larger down payment helps avoid PMI and lowers your monthly payments. If you’re already paying PMI or have no way to avoid it, you can request that the PMI be dropped once your loan balance is below 80 percent. Lenders are required to drop the PMI when your mortgage balance reaches 78 percent of the original purchase price (provided you haven’t missed any payments). If you’re already at that point, check to make sure you’re no longer paying for PMI.
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