“Outside of buying a wreck - I mean, a 'fixer-upper' - what money-saving moves can I make during the home-buying process?”
Ever notice that nearly every home-buying article begins with “it’s one of the most worthwhile purchases you’ll ever make” before launching into all the ways that that home could bankrupt you? While all that’s unfortunately true, we’d prefer to give you a top ten list of strategies you can use to keep those expenses down.
1. Not to beat the point to death, but you’ll look like a better mortgage candidate with a good credit score. Before you start browsing Zillow or Trulia, do yourself a favor and make sure your credit report is clear and your debt-to-income ratio is low - under 36% is ideal, and definitely no higher than 43%. If your credit score is south of “Very Good,” pay off some of your existing debt to raise it.
2. Shop around for the best mortgage rate. Your realtor will likely recommend mortgage lenders they’ve previously worked with, but those lenders may be more focused on closing the deal than securing the best rate for you. Because even half a percentage point can tack tens of thousands of dollars over the course of your mortgage, it literally pays to do your mortgage homework.
3. Only buy as much home as you can afford. When you get pre-approved, the bank might approve you for an amount greater than what you can afford, especially if you have great credit, a good salary, and a savings cushion. While this number looks great to a potential seller or loan officer, that higher mortgage might end up cutting into childcare expenses down the line, or even your retirement savings. Just because you can take all the cookies from the cookie jar doesn’t mean you should - stick to your original budget.
4. Choose a longer term for your mortgage. Let’s say the interest rate for a 15-year mortgage is 3.2% and a 30-year mortgage is 3.9%. Though the 15-year interest rate is lower, you’ll end up paying around $2,100 a month on a $300,000 mortgage loan versus $1,400 a month with a 30-year. The lower monthly payment may make things much easier on your monthly budget.
5. Scrap PMI as soon as possible and throw down any additional funds you can to get your mortgage balance to 80%, the point where you can cancel PMI. If you get $2,000 in your tax return for instance, split that check between your mortgage bill and your retirement accounts. PMI doesn’t build equity like your mortgage or protect your home like homeowner's insurance, so don’t pay it any longer than you’re required to.
6. When it comes to homeowner's insurance, check your auto insurance. No really, there’s logic to this: insurance companies offer discounts when you purchase both your homeowner's and car insurance from the same company.
7. Choose a higher deductible for your homeowner's insurance. When you take the plunge and up your deductible to $2,500 or $5,000, insurance companies slash your premiums by hundreds of dollars a year. You may pay more when something minor needs to be repaired, but you’ll still have all the insurance benefits you need if your neighbor’s tree wants your house to cuddle and be the little spoon.
8. If you recently installed a security system, added weatherproof doors or windows, or automatic leak detectors, don’t be shy in calling your insurance company and asking if those new upgrades entitle you to any discounts. In many cases, you’ll get additional credits on your premiums.
9. Take the time to visit your local town hall and ask for your property tax card - it lists your lot size, room dimensions, additions made to the house and more. If something isn’t right, update the tax card as soon as you can. The revised information might result in a lower property tax bill.
10. If your house is drafty, grab some caulking and insulation instead of an extra sweater. Letting heat escape is essentially wasting money - older windows account for up to 25% of a home’s heat loss. Replace the weatherproof stripping around your doors, add insulation to your attic door, and install a programmable thermostat to save you cash in the long run.
Photo: Tim Fenn