Buying a home can be stressful, but having a financial plan before you start the process can take a little pressure off your plate.
One of the proudest moments in a person’s life is buying a home. From looking at different houses and planning your dream space, it can be a fun time for anyone.
Yet, many don’t realize the stress on the financial end of things.
Homes are huge purchases that take a lot of preparation. If you rush into buying a home, you might take a financial hit. The following five tips are ones that you can do to better arrange your finances to make the home buying process easier. Plus, you might save some money too!
1. Start Saving Early
The three main costs you want to consider during the home buying process are the down payment, closing costs, and move-in expenses. All are financial responsibilities you’ll need to pay up front.
Down payments are dependent on the type of mortgage and lender you choose. It can be as low as 3% for first time home buyers and 20% after that. As you can see, this adds up to a large amount when making a big purchase such as a house. Down payments are a big reason to start saving early.
Closing costs are fees and expenses to finalize your mortgage. The percentage of what you have to pay varies from 2%-5%. Sometimes the seller will pay the closing costs, but you should ask your realtor what they suggest.
Move-in expenses are what you’ll need to actually move and get settled in. Sometimes homes aren’t completely move-in ready and you’ll need to fix it up first.
No matter what, when you start to save early, these costs won’t seem as big of a deal.
2. Check and Strengthen Your Credit Score
You credit score is the most important thing when buying a home. It lets lenders know how much money you can borrow and pay back. Your interest rate will be dependent on your credit score too.
To get a lower interest rate, you should make sure you have a strong credit score. You can up yours by paying your bills on time, not opening up other forms of credit, and keeping your credit cards open. Keep track of your credit score using free websites.
3. Explore Mortgage Options
There are a few different types of mortgages. The four most popular kinds are conventional mortgages, FHA loans, USDA loans, and VA loans. When you speak to your lender, they will let you know what the best mortgage option is for you.
Other options to keep in mind when thinking about your mortgage are the terms. The most typical terms are 30 and 15-year loans. 30-year loans have lower monthly payments but take longer to pay off. Whereas 15-year loans have bigger payments but take half the amount of time.
4. Stick to Your Budget
Even if your lender offers you a larger loan amount, stick to what you’re comfortable paying. Think and discuss what payment amount you’d want to pay for the next 15 to 30 years.
If you let yourself go above your financial means when buying a home, it will impact your everyday life.
To help make sure you stick to your budget, look for homes that are a little under your price range. That way if you get into a bidding war you have some room to make a higher offer.
5. Negotiate with the Seller
One great way to save some money during the home buying process is to negotiate with the seller.
There may be some repairs or upgrades to the house that needs to be done. Try asking the seller to fix them before you move in. That will save you move-in expenses in the future.
Another way to cut your costs down is to ask the seller to pay some of the closings costs. Beware though. This might backfire on you depending on the market. Your realtor should be knowledgeable about the local market and help you strategize.
The home buying process is a big step into your family’s future. Use these tips to help save some money while you move-in to your dream home.