This post contains informational content based on the author’s personal experiences. This information is not financial advice. Please consult your tax advisor and other financial professionals for advice specific to your situation.
There are plenty of things you need to consider when buying a house. If you want to save money during the process, here are the things you need to know.
Don’t feel overwhelmed by buying a house, this is a major learning curve, but it is manageable.
Fix Your Credit
It generally takes about a month for updates to be made to your credit.
Therefore, you will need to make any necessary corrections, pay down debt, pay off creditors and anything else you need to do, at least a month before you plan on applying for a mortgage.
You want your credit to be as good as it can possibly be when you are buying a house because you will more than likely have this loan for 15 to 30 years.
Understand What You Want
Make a list of things that you really want in a house, things you really don’t want, and things that are nice to have.
By understanding this before you even start looking at houses, you won’t be easily swayed by flashy offers and you are more likely to find a house that actually fits your needs.
It will be much more helpful if you think about a base price you are willing to pay for the basic things, then apply a price to each upgrade you are interested in getting. You can even make deductions for things that you find wrong with the house.
Consider Getting a Home Inspector
This is especially important if this is your first time buying a house and you aren’t sure what kinds of things you should be looking for or if you are unable to physically do a complete inspection of the house.
Now that we have bought a multiple houses, we skip this because we are able to do a better inspection than most home inspectors would be willing to do.
Ultimately, no one cares about your house as much as you do, so don’t be afraid to ask plenty of questions while the inspector is there. That is part of what you are paying them for. In fact, it would be a good idea to have a Google Doc already filled with any questions that you have.
Have a Down Payment
When you are buying a house, a down payment will lessen your mortgage loan amount by that amount, so you will end up paying less interest over the life of the loan.
However, unless you are able to have at least a 20% down payment, you will still end up paying Primary Mortgage Insurance (PMI). So it is very important for you to try to already have this down payment if you can.
If you are someone that has trouble with seeing the money in your savings account, you should consider getting a savings account that isn’t with your bank. This way you won’t see all the money you have saved every time you log into your online account.
A high interest savings account is one of the best options when it comes to saving because you will make significantly more in interest with a HYSA than you would with a normal savings account at your bank, and it is just as easy to access the money once you have your account established.
Consider Making a Budget
Every time we have bought a house, the lender always approves us for way more than we want to spend.
With that being said, you should understand what your monthly and annual expenses look like so you know how much house you can truly afford based off your actual spending habits.
If you are anything like me, you don’t want to change your spending habits and way of life just because you are buying a house.
By creating a budget, you will get a better idea of the months that you generally spend the most and where you can save money without really impacting your way of life.
Making a budget will also help you save a larger down payment because you will be able to easily see where you can save a bit of money.
Although you don’t need to create a budget just because you are buying a house, it will definitely help you prepare for the unexpected expenses that can come with owning a house.
Undated Easy Budget Planner
15 Year vs 30 Year Mortgage
Depending on how interest rate are when you are buying a house, your cash flow, your current emergency savings account balance, and ultimately what you feel comfortable doing, you might want to compare 15 year and 30 year mortgage rates and costs.
If it is pushing it a bit, but you feel like you might be able to afford the monthly mortgage bill of the 15 year mortgage, don’t go with the 15 year mortgage. Instead, get the 30 year mortgage and just pretend like you have the 15 year mortgage by auto drafting that money into a completely separate bank account from your other bills, but only pay the amount that you would need to pay for the 30 year mortgage.
This way you can keep allotting that money towards your mortgage without locking yourself into it being for your mortgage, so should you need it for something else, you can just pull that money out as long as you keep enough money to cover your mortgage bill each month.
Once you bank enough money for 1 year of extra payments, you can either pay more each month while keeping that extra 1 year of payments aside or you can just keep adding to the account.
At some point, you will have enough money to just pay the loan off entirely.
Pro Tip: Although you can use the same bank that is your mortgage lender, you should also consider getting a high interest savings account to do this with so you can make more interest back on the extra money that is sitting in the account. Just make sure all this is setup to auto draft so you don’t have to worry about remembering to do all this. Just make sure to check on it so you know it is always working properly.
Get Preapproved before House Shopping
This is especially important if you are in a very competitive market. However, realtors generally don’t take you seriously until you have a preapproval letter from a lender.
Your preapproval letter will help you quickly jump on houses that you are interested in, but it will also help you know what is the max amount you can offer for a house.
Apply at Multiple Lenders
You are able to apply to multiple lenders within a 30 period without it negatively impacting your credit.
You should look at multiple lenders because the terms and rates associated with each lender are different. Be sure to compare each lettered line item of your mortgage package to the other lenders you are considering.
This will help you see how much more expensive one lender is over another, but it will also help you spot any unnecessary charges they have added so you can either get them removed or pick another lender.
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Lock in Your Interest Rate
With many companies, your interest rate isn’t locked in immediately when you apply for the mortgage. However, you should consider locking it in immediately because generally the interest rates only get higher as time passes.
Ask your mortgage company if they allow you to unlock and relock it once more before closing on the house. Many companies allow this and it will help prevent you from being stuck with a high interest rate.
Understand the Market
When it comes to buying a house and recognizing a good deal, you need to understand what you are looking for in a house and if there are any houses that fit those requirements and at what costs.
There will be times when you can find a house that is priced below its value just because it is outdated or has some other cosmetic issues.
Cosmetic issues are easily fixed, as long as the house has good bones and doesn’t have any major structural issues or issues with the basic systems (plumbing, electrical, HVAC, etc), you shouldn’t shy away from an ugly house.
On the flip side, if you need to buy a house for more than it is worth, it can still be a good investment if you are spending more to rent than it would cost to own.
Find the Best Homeowners Insurance
All lenders require you to have homeowners insurance when you are buying a house, just because they want to protect themselves from a major financial loss should something happen to the house.
It is good to shop around for homeowners insurance instead of assuming you will get the best rate by bundling with your car or other insurance.
Especially in today’s market, homeowners insurance can easily vary by $1000 or more depending on the company you are looking at, even with the same exact or similar coverages. So be sure to shop around so you can find the best deal.
Many mortgage companies will require you to put your homeowners insurance and property taxes in an escrow account at closing.
If you are financially responsible enough, and your mortgage company agrees to let you prepay your homeowners insurance and property taxes on your own, it is truly better for you to put that money in a high interest savings account instead of escrow with your mortgage company.
This will allow you to make money off the interest being accrued on your money sitting in the high interest savings account versus you letting that interest go to your mortgage company.
I would recommend that you put the due date for your homeowners insurance and property taxes in your Google Calendar anyway, just so you know when it should be paid by. This will also keep you in the habit of thinking about it every year, so even once you pay off your house, you won’t forget about paying those bills.
You should also shop for a new homeowners insurance company every couple of years at the minimum because a lot of times, the company will go up on your rates just because they know that you are less likely to swap companies once you are established with one.
If you can shop around annually, I would absolutely recommend you do that because you are more likely to save money every time you switch.
You will also save money if you pay your homeowners insurance in full instead of letting them split the payments down for you.
If you can’t afford to pay for the full homeowners insurance amount at once, consider getting a 0% interest credit card and just putting that bill and maybe one utility bill on that card so it is getting monthly use. This will allow you to pay the insurance in full while also being able to pay the money a bit every month.
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Ask about Prepayment Penalty
A “prepayment penalty” is what your lender will charge you for making any early payments on your mortgage. You should specifically ask about this and make sure there isn’t a prepayment penalty for your mortgage.
You should also double check your mortgage documents throughout the application process and at closing to ensure that it isn’t applied to your mortgage.
You never know what life might be like in the future, and the last thing you want is to be penalized for being financially responsible and paying off your mortgage as soon as you can.
You might also end up using any pay raises, bonuses, and other money you come into to help pay down your mortgage faster.
Don’t Forget about Closing Costs
Closing costs are fees that you pay in addition to the amount you are putting down as a down payment. Be sure that the closing costs values match what was set in your mortgage pre-approval documents.
Don’t go crazy buying a bunch of things for your new house until you actually close on the house.
There have been plenty of stories of people accidentally spending their closing costs funds on appliances and home decor because they thought they already paid for everything related to the house. Don’t be that person.
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