Finding ways to save money when buying a house is important. Since it’s likely one of the largest purchases you’ll ever make, even a small misstep can have a long-term impact on your financial life.
Fortunately, there are quite a few things you can do to protect your financial future when buying a home.
In fact, here are 25 of the best ways to save money on your next home purchase.
1. Calculate What You Can Afford (and Stick to It!)
Understanding how much house you can afford is the most important step before looking for a house.
Unfortunately, most people rely on the amount that the bank will pre-approve. The problem with this is that the bank doesn’t know your personal financial situation.
The other thing to consider is that banks are a business. They make money from the interest on the loans.
And the larger the loan, the more money they make. And because of that, they want to lend you as much money as they think you can possibly afford.
But just because a bank thinks you can afford it, doesn’t mean you can. Beyond that, what’s the point of buying a house if you can’t afford to do anything else?
We recommend that your mortgage payment not exceed 25-30 percent of your take-home pay (with at least a 20% down payment).
In other words, if you make $5,000 per month after taxes, then your mortgage payment should be no more than $1,250.
I know that might seem low. But trust me, if you have the patience to save enough of a down payment to fit within these guidelines, you will be setting your financial life up for long-term success.
Also, be very clear with your real estate agent that you will not look at any homes that fall outside of your budget.
Interested in saving money? Check out some of these other helpful posts:
- 21 Ways To Save For A House FAST
- 21 Tips For Designing A Home Office On A Budget
- 25 Ways To Save Money On A Kitchen Remodel
- 15 Best Places To Buy A Couch On A Budget
- 21 Ways To Update An Old Home On A Budget
- How To Save $1,000 Fast (10 Killer Tips)
- 10 Proven Ways To Aggressively Save Money
2. Save A Larger Down Payment
There are lots of loans available that require very little down. For first-time homebuyers who qualify for an FHA (Federal Housing Administration) loan, your required down payment could be as low as 3.5%.
While this seems great at first, it can actually lead you to purchase a home you can’t afford. And when you do that, you can end up having to deal with some seriously painful financial consequences.
First, the smaller your down payment, the more you will need to borrow from a bank. This means that you will pay even more interest over the life of the loan.
Also, there are other hidden costs such as PMI (private mortgage insurance).
This insurance is to protect the lender from a buyer who defaults on a loan. PMI can cost homeowners hundreds of dollars a month.
Luckily, in most cases, a 20 percent down payment will keep you from having to pay PMI.
3. Shop For The Best Interest Rates
Most people don’t realize how big of an impact a small change to their interest rate can have on their total mortgage cost.
Consider a $300,000 mortgage with a 3.5% interest rate on a 30-year loan. By the end of the 30 years, the loan with interest will cost $484,968.
The same loan with a 3.0% interest rate would cost $455,322. That’s a savings of nearly $30,000!
The interest rates will vary from lender to lender.
For this reason, you should get quotes from multiple lenders. This will ensure that you are getting the best rates possible.
4. Watch Out For High HOA Fees
Some communities or developments are managed by an HOA (homeowner’s association).
This organization ensures that all the residents in the area are following the rules or guidelines for the properties and residents that live there.
There are many pros and cons to living in a community with an HOA.
On one hand, they help keep the community looking nice by enforcing rules with residents or maintaining common areas. However, as a homeowner, you’ll be required to pay a monthly HOA fee—some of which can cost you hundreds of dollars per month.
By avoiding HOA controlled neighborhoods in your home search, you can save on these costs.
5. Buy A Fixer-Upper
If you are handy or enjoy home improvement projects, you could save money by buying a fixer upper.
This is scary to most people, so homes that need a little TLC may be harder to sell and can be snatched up at a discount.
And the best part is, in many cases, these homes just need cosmetic updates such as flooring and paint.
Just be sure to get a home inspection so that you have a good understanding of the renovation costs.
6. Pay Cash
We’ve all heard the saying “cash is king”. This is so true when it comes to buying a home.
By paying in cash, you get a lot of additional negotiating power since it is much easier to deal with a cash buyer. A cash offer comes with a faster closing time and reduced risk of the deal falling through if the buyer can’t secure their loan.
This option may be out of reach for most first-time buyers, but homeowners with some serious equity could downsize or move to an affordable part of town in order to pay cash.
On the other hand, if you have the patience to save up for a starter home, you can end up saving tens or even hundreds of thousands of dollars on interest by paying cash.
7. Look For Employee Discounts
If you work for a major corporation, you could qualify for discounted interest rates, closing cost matches, or other perks from a partnering mortgage lender.
This benefits both the corporation and the mortgage lender.
For the corporation, they can use this as a perk to help retain employees. For the mortgage lender, this results in more customers.
Ask your HR department about employee discount programs that are available. You never know, this could end up saving you thousands of dollars in interest over the life of your mortgage.
8. Buy The Right Insurance Policy
Once you have purchased your home, you’ll want to protect your investment with homeowner’s insurance.
Since insurance companies are looking to sell the most extensive policies, you could end up paying for more than what you need.
So, when shopping for home insurance, be sure to evaluate exactly what each policy covers and what it doesn’t.
You might be able to make small adjustments that save you a lot of money.
For example, if your new home is on top of a hill, you may not need additional flood insurance.
If you want to find the perfect policy, we recommend using a tool like Insurify or EverQuote to compare rates and find the best possible option.
9. House Hacking
In some cases, you can purchase a home and let someone else help pay the mortgage (yes, you read that right).
This is possible through a strategy called house hacking where homeowners purchase a multi-unit property. The homeowner lives in one of the units and rents out the others.
The monthly revenue collected each month from the other tenants is then used to pay some or all of the mortgage. While this is a great tactic to reduce your housing budget, you will need to take on landlord responsibilities such as making repairs and finding tenants.
Just to be clear, you should still stick to the guideline of keeping your mortgage payment less than 25% your take-home pay. In other words, don’t go buying a more expensive home just because you want to rent part of it out.
Remember, if you can’t find a tenant, you’ll be stuck paying for a house you can’t afford.
10. Consider The Space You Need
Additional square footage typically costs more money.
So, you should take the time to evaluate exactly how much space you actually need.
By opting to purchase a smaller space, you can save thousands of dollars on your home purchase.
To put it simply, don’t purchase more home than you need.
11. Make Extra Mortgage Payments
The interest on a loan is calculated based on the amount that you still owe.
Therefore, at the beginning of your mortgage, most of your payment will go toward interest.
However, over time, more and more will go toward the principal. By making extra payments, you can accelerate your payoff and reduce your total amount paid in interest.
A lot of people recommend a biweekly mortgage payment versus paying monthly. Instead of paying $2,000 each month, you pay $1,000 every other week (typically on payday), resulting in two additional payments each year.
However, here at Be The Budget (being the debt-free people we are) we recommend throwing as much money as you can at your mortgage.
After all, the sooner you pay off your mortgage, the more financial freedom you’ll experience.
12. Ask The Seller To Pay For Stuff
When negotiating the purchase price of your house, you can ask the seller to cover certain things such as major repairs or closing costs.
If you are having trouble getting to your targeted budget, this might be where the sellers are willing to be flexible.
As always, talk to your real estate agent about your options and their recommendations.
13. Look For Discounted Properties
When homebuyers get into trouble, their properties are sometimes put up for auction or sold at a discount.
This is usually a result of them defaulting on a mortgage or not paying property taxes.
Ask your real estate agent to see listings that are identified as auctions, bank-owned, or short sales. There is usually high competition for these types of properties because of their discounted prices, but it’s worth exploring.
If you have the money to pay cash, these can be a particularly great option, as banks like working with cash buyers.
14. Buy Direct From A Homeowner
While searching for your dream home, you may come across houses that are listed as “For Sale by Owner” (or FSBO).
These are homes that are being sold directly by the homeowner without the use of a real estate agent.
There are pros and cons to buying a FSBO property.
On the positive side, both you and the owner can avoid the fees paid to their real estate agent.
The owner also can share detailed information about the home that the agent wouldn’t know.
On the flip side, however, the owner might have an emotional attachment to the property which can make it difficult to negotiate the price.
The good news is that you don’t have to go it alone. It’s within your rights to hire a buyer’s agent to negotiate directly with the homeowner on your behalf.
15. Look For Houses In The Winter
House prices fluctuate throughout the year.
And during the winter months, there are fewer buyers and more opportunities to get a lower price.
There are a couple of reasons for this.
First, fewer people want to have to deal with house hunting and moving during bad weather.
Also, families with school-aged children are less likely to move their kids from one school to another in the middle of a school year.
So, if you want to save money when buying a house, shop for homes in Winter.
16. Look For Houses That Are Relisted Or Reduced In Price
The longer a house sits on the market, the more likely the seller is to negotiate on the price.
Therefore, have your agent lookout for homes that have been on the market for a while.
One trick that sellers use is to remove their listing and relist the property, which makes the listing look brand new.
If you notice a house has been relisted, it might be an opportunity to get a good deal.
Price reductions are also an indication that you have negotiating power. That means that there were no buyers who were willing to pay the original listing price.
17. Look At Newly Renovated Or Flips
This might seem a little counterintuitive but buying a home that has been renovated or “flipped” can save you a lot of money in the long run.
Renovated homes typically have major repairs (like a new roof) already completed.
This reduces your risk of buying a home and having to make large unexpected repairs shortly after.
For that reason, if you’re buying a newly renovated home, ask the seller for a list of the items that were included in the renovation and factor those into your offer.
18. Move Quickly And Be Patient
Speed is important when buying a new home.
This is especially true in a seller’s market.
The sooner you get in and make an offer, the less opportunity other buyers may have to also make an offer.
The last thing you want is to get in a bidding war that pushes the house out of your price range.
Oh, and one more thing, if you do get into a bidding war, don’t let your emotions take over. Set a max budget for yourself, and be willing to walk away if the bids go any higher than you can afford.
19. Get A Thorough Home Inspection
Before you close on your house, you will want to get a home inspection.
Certain conditions, such as being a cash buyer, allow you to skip this step, however a home inspection is critical to identifying problems with the home and avoid costly repairs later.
Saving a few hundred dollars on a home inspection isn’t worth the risk of missing major issues with the roof, foundation, or other structural elements.
Seriously, spend the money on an inspection. It can save you thousands of dollars in the long run.
20. Consider Other Factors
There are other costs outside of the house price that could increase your monthly expenditures. For example, you should factor in additional fuel costs if the house is located further from your workplace.
Or, maybe the new school district has a more expensive after-school program.
Make sure to consider all of these extras before making a purchase decision.
21. Ask The Seller To Leave Furniture Or Appliances
In some cases, you can get the seller of the property to leave big-ticket items behind after they move out.
For instance, items such as large appliances or furniture can be added to the agreement.
Some sellers might not mind if the items won’t fit in their new place or they planned to upgrade when they moved.
It never hurts to ask, and it could save you hundreds, or even thousands of dollars.
22. Avoid Luxuries That You Won’t Use
When looking for a home, it’s very easy to become enamored with luxuries like home offices, pools, in-law suites, and large garages.
Think about what you need and what you don’t.
In other words, if you don’t like to swim, don’t pay extra for a house that has a pool.
23. Talk To Your Accountant
Before you make the decision to buy, we recommend talking to your accountant and getting their professional recommendation for your home purchase.
They might have ideas and suggestions that you hadn’t thought of before.
24. Find An Up-And-Coming Neighborhood
Some neighborhoods are a hotspot for development. As the condition of the neighborhood improves, so do home prices.
If you can identify these areas early, you can get in when the home prices are still low.
This can be a great way to get a good deal and also add a lot of equity quickly when your home value increases.
Your real estate agent is probably aware of these areas as they watch market trends closely.
25. Consider Building A House
In some cases, it may actually be cheaper to build a house rather than buy one.
This is especially true If you already own a plot of land on which to build.
The benefit of building a house is that you get new construction and have the opportunity to get exactly what you want.
You won’t need to compromise on the layout, the number of bedrooms, or finishes. Plus, you won’t have to deal with any major renovations or updates after you move in.
You might sit down with a contractor to get a ballpark number to see if that option makes sense for your budget. This can be a great way to save money when buying a house.
The Dream Of Homeownership
A lot of the stress that comes from buying a home is related to your finances.
But if you use some of the tips in this article, I’m confident that you can find an affordable home that you and your family will enjoy for many years.
The key is to be patient.
Remember, the more time you spend saving and looking for a home, the more likely you are to find a home that fits in your budget.
Hopefully, this list of cost-savings ideas will help you save money when buying your next house.