Purchasing a home can be fraught with unexpected expenses, especially for first-time buyers. If you are in the market for your first home, avoid costly mistakes with some advanced planning and by following these money saving tips.
Get pre-approved, not just prequalified
A mortgage loan pre-approval means that, barring anything unforeseen, a lender has committed a specific amount of funding to you based on your credit worthiness, which gives you more bargaining power when house hunting.
Compare mortgage options
Do your research to choose the mortgage that’s right for you. Whether you are opting for a 15 or 30-year mortgage, look around for the best terms based on current interest rates. Even half an interest point difference can cost, or save, thousands of dollars over the life of a 30-year loan.
Ask for a contingency clause
Sometimes loans fall through, or a house appraises higher than your approved funding. Protect yourself by securing a mortgage financing contingency clause, which guarantees that anything you’ve spent to secure the home will be repaid to you. Without this clause, you could lose your earnest money and still be required to buy the house.
You may think you can afford your dream home by cutting back on a few luxuries, but can you? Be realistic, and think conservatively when it comes to calculating future income and living expenses.
Finance experts recommend not spending more than 30% of your monthly income on mortgage payments.
Consider all out-of-pocket expenses
Mortgage payments aren’t the only thing you’ll need to plan for once you’re in your new home. Don’t forget homeowner’s association fees and property taxes. You may also be required to obtain private mortgage insurance if you paid less than 20% on the down payment of your home.
Don’t cut corners
Opting to skip having a home inspected before closing may save you a few dollars initially, but could end up costing you thousands in the long run. Be aware that repairs on major items such as furnaces or roofs can run up to $15,000 and beyond.
Don’t be afraid to negotiate
Closing costs can go as high as 8% of the purchase price, so it pays to ask the lender to cover all or some of these fees. You could opt for a loan with a no closing cost clause, but while this may save you money upfront, you may end up paying more over the life of the mortgage.
A little extra goes a long way
Just by adding a few extra dollars to your mortgage payment every month or making an additional payment now and then, you can cut years off your loan term and save thousands of dollars in interest payments in the process.
Sources: Inman, massrealestatenews.com, Bank Rate, The Simple Dollar
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