When buying a house for the first time, one significant consideration is how you can save money so you won’t have to break the bank. Studies show that up to 69% of homeowners are house poor. People use the term house poor to describe someone who stretches their finances too thin to make monthly mortgage payments.
Being house poor can seriously damper your ability to live comfortably. This is why it only makes sense to find ways to increase your savings when making a home purchase.
Pay a Higher Down Payment
Some mortgages allow qualified homebuyers to buy a house with little to no down payment. FHA loans, for instance, allow for a down payment of just 3.5%. However, going this route means having to pay mortgage insurance premiums (MIP). A MIP is an insurance policy that protects the lender if you default on your loan.
Veterans can qualify for VA loans, which do not require qualified applicants to pay any down payment. This is an incredible advantage, but take note that since no down payment is required, the monthly mortgage payments will be higher compared to if you put down a down payment.
But your monthly mortgage payments are lower when you pay a higher down payment. You’ll also avoid paying MIPs and will own a more significant equity stake in your home from the get-go. This is a great way to increase your savings as you’ll have more money left over at the end of each month.
Choose a House Under Your Budget
One thing every wise homebuyer can do to save money is to buy a house they can actually afford. Homes are expensive, and if you’re not careful, it’s easy to get over your head financially.
The first step is to calculate how much house you can actually afford. This number is usually lower than what lenders are willing to give you. This is because lenders will factor in your debt-to-income ratio when determining how much they’re willing to lend you.
Your DTI ratio is your monthly income percentage that goes towards paying off debts. For instance, if your monthly income is $4,000 and you have $400 going towards debts each month, your debt-to-income ratio is 10%. Lenders generally require a debt-to-income ratio of 36% or lower.
But even if your debt-to-income ratio is within the acceptable range, it doesn’t mean you should max out your budget. It’s still important to have a buffer so you’ll have room in your budget for other things, like saving for retirement or your child’s education. Once you know how much house you can afford, stick to your budget and don’t be tempted to buy a pricier home just because you can qualify for a bigger loan.
Invest in a Home Inspection
Any time you consider making a major purchase, you must do your due diligence and assess all potential risks. This is especially true when buying a home, which is likely the most expensive purchase you’ll ever make. A home inspection can help identify potential problems that could cost you big in the long run.
According to research, up to 20% of buyers skipped a home inspection in 2020. Skipping this task can lead to all sorts of problems, from hidden damage to faulty wiring. This is why it’s always a good idea to invest in a home inspection, even if it costs you a few hundred dollars upfront.
For example, an inspector might find evidence of water damage or structural issues that need to be repaired. These repairs can be expensive, and if you’re not aware of them, you could be in for a nasty surprise down the road. If you bought a house with such issues because you did not not these problems exist, you would have to pay for the repairs out of your own pocket.
So make sure invest in having the house inspected. Know that you can also use the result to negotiate the selling price. If the inspection report uncovers expensive repairs that need to be made, you can use this to your advantage and try to get the seller to lower the price of the home.
Remortgage When You Can
Let’s say a few years have passed and you’re doing well financially. Your income has increased, and you’ve been able to pay down some of your debt. This is a great time to consider remortgaging your home.
When you remortgage, you essentially take out a new mortgage with different terms. This could mean a lower interest rate, saving you money each month on your mortgage payments. You can also enjoy a longer repayment period, which would also lower your monthly payments.
In some cases, you might even be able to remortgage for more than the value of your home. This is called “negative equity,” allowing you to access cash that you can use for home improvements or other purposes. If you are unsure if remortgaging is right for you, seek a professional conveyancing solicitor.
The experts will be able to assess your individual circumstances and give you expert guidance on whether or not remortgaging is a good idea. They can also help to negotiate the best terms for your new mortgage and speed up the process. The trick is to find a company that offers customized solutions to your pain points, has years of legal industry expertise, and are committed to providing an excellent customer experience.
With these four tips, you can save more money when buying a home. You may have to make some sacrifices along the way, but it will be worth it in the end. So what are you waiting for? Start saving up and get ready to buy your dream home!
