For many American workers, it’s only getting harder to pay for a home. According to an analysis from Construction Coverage, wages have failed to keep up with home price growth since the early 2000s. In some Western states including Nevada, Washington, and Colorado, home prices outpaced wage growth by 3X between 2014 and 2019. Take Phoenix, for example, where prices grew 37.5% over a five-year period, while wages increased only 12.1%.
Even when mortgage rates are low, this massive discrepancy can put the possibility of homeownership out of reach despite someone’s diligent efforts to save up. And it’s not like you can find a “20% off the house of your choosing” coupon in the weekly Pennysaver. However, there are ways to make buying a house more affordable even as property values skyrocket. To help you recognize the best savings opportunities throughout the home-buying process, we put together these 10 essential money-saving tips for buying a house.
When you need help deciding what’s appropriate to offer on a home and how to get a better deal, an agent who’s a top-tier negotiator is going to be your best friend. Tenacious buyer’s agents are committed to saving their clients money and will be able to:
HomeLight can recommend you to a buyer’s agent known for helping their clients save on their purchase. To find these agents, we review their sale-to-list ratio for their buy-side transactions. Sale-to-list ratio represents the percentage of a list price that an agent’s clients end up paying for a home on average.
For example, an agent with a 95% sale-to-list for buy-side transactions knocks 5% off the list price for their buyer clients on average. (Five percent on a $250,000 home amounts to a savings of $12,500 on the purchase price).
We also give agents a “Top Negotiator” badge if they rank in the top 5% of agents in their area for saving buyers money so that they’re easy to identify.
When you hope to score a great deal on a house, you want to avoid jumping into the real estate market during peak house-hunting season. When demand exceeds supply in a market, prices will rise and make it difficult to negotiate much (if anything) off the list price. And increased competition from other buyers makes it more likely that you’ll end up in a bidding war.
Nationally, the best time to sell a home tends to be around the first two weeks of May. On the other hand, the worst time to sell nationally comes in January and February. However, these trends vary from market to market.
Find the “offseason” in your market using HomeLight’s Best Time to Sell Calculator, which uses actual transaction data to identify when sale prices peak and dip. Below, we’ve pulled some results for example cities so you can see the estimated savings:
To find out the best time to buy in your area, input your city into our Best Time to Sell Calculator. Look at the “Worst Month to Sell” in the top chart based on when sales prices tend to drop. Since our estimates are based on home closings rather than list dates, be sure to go back two to three months to determine which month you should go under contract for the best shot at a deal.
Having great credit can help you save on your home purchase. Why? Because the higher your score, the better deal you can get on your mortgage. Lenders will look at that important three-digit number as a measure of how well you’ve managed and paid off debt in the past, and how likely you are to pay back this loan on time.
If you apply for a mortgage with a lower score, you’ll likely pay a higher rate to account for any perceived risk your lender takes on by giving you a mortgage. On the flip side, lenders are typically willing to offer better rates to borrowers with a strong credit history.
Typically, the lowest mortgage rates are granted to those with scores of 740 or higher, and even a fraction of a percent shaved off your mortgage rate can result in significant savings over the life of your loan.
Below we’ve pulled data from MyFico’s Loan Savings Calculator to show you an estimate of how much mortgage rates rise as your credit score goes down based on 30-year fixed mortgage and current interest rates*:
FICO Score
APR
Monthly Payment
Total Interest Paid
760-850
2.363%
$698
$71,447
700-759
2.585%
$719
$78,911
680-699
2.762%
$736
$84,952
660-679
2.976%
$757
$92,361
640-659
3.406%
$799
$107,591
620-639
3.952%
$854
$127,575
Numbers courtesy of MyFICO loan savings calculator (Interest rates as of 2/1/2021)*
Buying a house can be a lot to manage. You’ll need to keep tabs on property listings you like, make time for house tours, and handle your regular responsibilities, too. The stress of it all can tempt you into taking shortcuts — like going with the first mortgage lender you find or sticking with your bank because it’s easy.
Shopping for a mortgage will require an extra layer of communication and paperwork, but doing so can help you get a better mortgage rate and reduce what you pay in fees.
According to a 2018 study from Freddie Mac, buyers who shop for two rate quotes will on average save $1,435 in interest over the life of the loan. Make it five rate quotes and the savings jumps to an average $2,914 saved over the same period.
You’ll also want to compare lender fees from each company so that you don’t get taken to the cleaners on extra charges. Fees for the loan application, loan origination, and credit report, for example, are optional and vary among lenders. You won’t know who’s offering a better deal unless you collect multiple loan estimates.
If one lender is offering fewer charges but another one seems easier to work with, you may be able to use competing loan estimates as a negotiation tool to improve your terms. Just be sure to collect them in the same 45-day window to avoid hurting your credit.
According to a survey of over 2,000 adults from real estate brokerage Coldwell Banker, 80% of Americans say they would prefer to buy a turnkey home over one that requires renovations. But the 20% who’d be open to buying a fixer-upper will enjoy the opportunity to find a bargain.
For one, fixer-uppers typically list for 8% below market value. This may give you the chance to choose a higher-end neighborhood at an affordable price point and improve the property little by little over time.
In addition, homeowners who anticipate they’ll need to make repairs on their new home may be able to finance the cost of those improvements through their mortgage. Options like the FHA (Federal Housing Administration) 203(k) loan and Fannie Mae HomeStyle Renovation program are designed to do exactly that.
Depending on the features and condition of the home you choose to buy, you may need to order additional inspections beyond the general one. Paying for each of these additional inspections a la carte can add up, but you may be able to save by bundling them. For example, some home inspections will bundle a pest inspection into a standard home inspection for an additional $75-$125. In addition, a radon test on its own costs about $450 on average, but adding it into your regular home inspection will range between $90-$250.
This advice may seem counterintuitive: How does putting more money down save you when you purchase a house? However, a larger down payment, even if it’s more expensive upfront, can reduce your costs in several ways.
For one, the higher your down payment amount, the lower your mortgage rate will likely be. In addition, if you’re able to put at least 20% down on a conventional loan, you’ll avoid having to pay private mortgage insurance (PMI) which annually costs between .5% to 1% of the entire loan amount until you hit 20% equity.
If you’re struggling with the down payment, you could consider tapping into your personal network for assistance. Online platform HomeFundIt, for example, makes it easier for friends and family to make contributions without having to write paper checks or gift letters. (Note: HomeFundIt is available to use with standard conventional loans, but not with renovation loans, FHA, VA, USDA, or jumbo loans).
However, don’t try and extend your means beyond what’s comfortable. You don’t need 20% down to buy a home. According to the National Association of Realtors, the median down payment in 2020 was 12% for all buyers and 7% for first-time buyers.
Depending on your line of work, you could qualify for a special type of loan, price discount, or closing cost assistance. Teachers, for example, are eligible for a host of homebuyer programs. Law enforcement, firefighters, emergency technicians — in addition to teachers — can get 50% off the list price of a home through the Good Neighbor Next Door program.
Farmers and other rural households may be able to apply for a USDA loan, while VA (Veterans Administration) loans make buying a house more affordable for military veterans and their spouses.
In addition, your real estate brokerage could offer additional incentives as a “thank you” for what you do. “Our agency has a ‘Heroes Program,’” says top-selling Charlotte, North Carolina real estate agent Kyle Bender.
“If you’re military, if you’re a veteran, if you’re a doctor, a nurse, a teacher, we’ll give you money back at closing.”
Fannie Mae’s HomePath Ready Buyer Program is a special program Fannie Mae uses to offer up their previously foreclosed upon properties. Because they are previous foreclosures, HomePath properties are typically offered below market value, and you can save even more money if you take the HomePath Ready Buyer Program educational course, which lets you save up to 3% on your closing costs.
It seems obvious, but buying more house than you can afford will leave you feeling cash-strapped every month. The solution? Search for homes on the lower end of your budget, instead of stretching your limits. To determine your ideal price range, consult HomeLight’s Home Affordability Calculator, which takes into account your current income, savings, and monthly debt. (Note that our calculator is a great starting point; however, it’s not a guarantee of how much you can afford).
You may be struck by the space and beauty of the priciest homes you see. But a smaller, more affordable home could mean that you’re able to make a higher down payment to secure a better mortgage rate or afford updates to improve the home to your liking. In addition, a lower-priced property can reduce your property tax bill significantly. Property taxes are calculated by multiplying the local government’s tax rate (aka mill levy) by your assessed value. The lower the assessed value, the less you pay in property taxes.
A house is no small expense. In addition to the sticker price, you’ll need to account for an estimated 2%-5% in closing costs, plus taxes, maintenance, and insurance that will add to your monthly housing costs. With home prices rising so rapidly in recent years, home affordability has only become a bigger challenge. However, with the right real estate agent, the diligence to shop around, and a smart budgeting plan, you’ll end up in a home that you love while knowing you did everything you could to keep costs at a minimum.
*This information is for educational purposes only and not intended to illustrate available APRs or mortgage-related marketing under the Truth-in-Lending Act Section 1026.24.
Header Image Source: (Matthew Henry / Burst)
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