Buying a house changes everything. Sometimes it changes things for the better, while other times it produces a wake of destruction. It all depends on how you approach the process, the steps you take, and the discipline you use to secure a property that is a blessing (rather than a curse).
There’s no singular formula for buying a house, but the following hacks may prove helpful in allowing you to secure the property of your dreams:
Save Up for a Larger Down Payment (At Least 20%)
Many mortgage lenders will happily offer loan products with small down payments in the 3.5 to 5 percent rage. And at first glance, this seems like a pretty good idea. It allows you to get into a nice house without having to fork over much cash. But the long-term consequences of taking on a loan with a small down payment can be costly.
When you only put down a small amount upfront, lenders require you to pay private mortgage insurance (PMI). This can amount to 0.5 to 1 percent of the entire loan amount on an annual basis. So if your loan is for $300,000, PMI could cost as much as $3,000 per year (or $250 per month).
The good news is that PMI can be avoided by putting down at least 20 percent upfront. If you can’t afford a 20 percent down payment, carefully consider whether or not you can truly afford to purchase the property in the first place.
Move Just Outside the Hot Zone
Real estate is all about location, location, location. If you want to live in the most desirable part of town, you’re going to pay a steep premium. But if you’re flexible in your location, you can save some serious cash.
You don’t have to live out in the sticks to save – you just need to shift your focus ever so slightly. In large cities, this could mean moving a couple of streets further north or south. In a suburban area, it might look like moving five minutes further out of town.
Shop Around for the Right Loan
There’s never been a better time to secure a home loan. Interest rates are lower than they’ve ever been and terms are super friendly for buyers. But in order to get the best possible loan, you’ll have to shop around.
When shopping for a home loan, you’ll need to consider interest rates, repayment terms, loan length, closing costs, and other pertinent factors. As low as rates are at the moment, you should still try to get the lowest rate you can (even if it means paying more in closing costs). Even a variance of a quarter-percent can mean thousands of dollars in savings.
Negotiate Closing Costs
When your lender provides you with an estimate for closing costs, don’t assume that these numbers are set in stone. As with everything, these costs can be negotiated.
If your lender is being stubborn and refuses to budge on the numbers, you can always use a few tricks to lower costs on your own.
One trick is to schedule closing for the end of the month. This reduces the number of days to which per diem interest is applied. In some cases, this can significantly lower the amount you owe upfront.
“To see how much you’d save, just multiply your loan amount (the total amount financed) by your interest rate — for instance, if your rate is 3 percent, multiply by .03 — to get your annual interest expense,” Bankrate.com mentions. “Then divide that figure by 365 to get your daily interest charge. Next, multiply that figure by the number of days left in the month. If you close toward the end of the month, this figure would of course be much lower than closing mid-month.”
Another suggestion is to shop around for vendors for various services like home inspection and property insurance. You might be able to find less expensive options on your own.
Buy the House of Your Dreams
There’s no such thing as a perfect house. But if you use the hacks outlined in this article, you’ll increase your odds of finding a property that’s rewarding on all fronts. Take your time, remain disciplined, and never rush into a purchase decision without considering all of the ramifications (logistically, emotionally, and financially).