5 Ways to Save When Buying a Home
Buying a new home? Here are some ways to save money.
The cost of housing is rising faster than incomes for the middle class, especially if you’re renting. By buying a house, you have more control over rising housing costs, but you also have a rather large financial commitment for decades to come. While borrowing money in order to buy a home is expensive, there are ways to reduce your payments and cut the overall cost of home ownership.
Get rid of the PMI. If you borrow more than 80% of the value of your home, you normally have to pay for private mortgage insurance (PMI) to protect the lender.
A down payment of 20% is one way to avoid paying for PMI, but not everyone can swing it. Another idea is an 80/10/10 mortgage. This arrangement, also known as a piggyback mortgage, allows you to put 10% down, borrow 80% on the primary mortgage so you don’t have to pay for PMI, and then borrow another 10% as a second mortgage loan.
Buy a less expensive home. It may seem obvious, but sometimes a little reality check may be in order. While it’s nice to have a dream, buyers need to be realistic when it comes to buying a home. Buying a less expensive home not only opens up the possibility of a 20% down payment, which eliminates the cost of PMI, but it also reduces many other costs. You’ll save money on property taxes and insurance, and maybe even maintenance and utilities.
Buy cheaper insurance. If your mortgage payment includes an escrow amount for home insurance, you can get it lowered by finding a cheaper policy. And if it isn’t rolled into your house payment, you can save money by finding better insurance rates. Lenders have minimum requirements for homeowners insurance, so the policy you buy must meet their criteria.
Make extra one-time payments. If you get a substantial tax refund or a monetary gift, you can put a chunk of it toward your mortgage. If you pay an extra $1,000, the balance of your loan will be $1,000 lower than it would have been for every remaining month. For example, if the interest rate on your loan is 5%, you’ll save $50 in interest every year until you make the final payment.
Make regular extra payments. If you can afford to add more to your monthly payments, this is one of the surest ways to reduce your interest charges over the years. A loan payment calculator can show you how much you’ll save with regular extra payments.