When people talk about major investments, purchasing real estate certainly tops the list. The increase in down payment requirements plus the closing costs and prepaid expenses can prevent many individuals from purchasing real estate.
As a potential homebuyer, you probably already know that buying a house is a pricey investment. Thankfully, there are many ways to save thousands of dollars and lower your closing costs. This article lists a few smart strategies you can follow to make your dream house a reality.
Save Enough Money For A Down Payment
This may seem like a no brainer, but it is very important. Saving enough money for the down payment is the key steps to owning your first home. Keep in mind that that if you have a higher deposit, your savings history will also look better- which is a huge bonus for lenders. This means that you won’t have to borrow a huge amount for your mortgage, which will then translate to lower monthly repayments and lesser interest rates. Here are a few strategies that can help you save money.
- Save 10% to 15% of your paycheck and place it on your saving account. This will help you start building your deposit in your chosen bank.
- Pay off your debt. The less money you need to pay for your credit card balance and loan, the more you are able to save for the down payment for your house. In addition, paying off your debt also improves your credit score, increasing the amount of money you can loan for your mortgage.
- Start a budget. You need to carefully determine how you are going to spend your money. For instance, you need to take into account your monthly income then set your spending goals. When starting a budget, you will need to consider your long-term, homeownership plan. Successfully tracking your expenses will help you stay on track and put more savings into your account.
- Avoid spending money on unnecessary things. Obviously, you need to be careful with how you spend your money. To this end, you need to consider whether certain expenses are necessary or what expenses you can do without. For instance, do you really have to eat out at restaurants every night instead of cooking at home?
Tightening your budget may seem tedious and frustrating; however, it is the best way to save money in the long run.
Get A Short-Term Mortgage
If you are looking for a mortgage or if you are thinking of refinancing, it is smarter to get a short-term loan. This means getting a 15-year loan term instead of a 30-year term. In doing so, you will be able to pay off your mortgage within 15 years instead of 30 years, and that entails certain benefits as well as challenges.
On a positive note, a 15-year loan means you will have a lower interest rate. Most lenders offer an interest rate that is at least half a percent lower than the rate for a 30-year loan. This basically means that you will be paying lesser interest over the life of your mortgage. However, since you are paying a loan within a short period, your monthly payment will be much higher. With that said, before you consider this money saving strategy, be sure that you can afford it.
If Possible, Don’t Buy Private Mortgage Insurance
Most lenders or financing institutions require homebuyers to purchase private mortgage insurance (PMI) if their down payment was less than 20% of their home value. PMI is a policy that protects the lenders from possible losses if you are unable to pay for your loan. To help you save money, you can get rid of your PMI by paying 20% down payment or more.
Don’t worry if you are unable to pay for such a huge amount. There is still a way to lose the insurance. For one, once you made enough payments to gain 20% equity of your home, you can send a request to your lender to cancel your insurance. Remember that federal law requires your PMI payments to immediately stop once you reach 22% equity of your home- based on the original purchase price, and if you have a good payment history.
Tax Credit For Moving Expenses
If you are considering getting a house that is located more than 50 miles from your old house because it is closer to your new office, you can deduct travel expenses for you and your family. In addition, you can even deduct the cost of moving your belongings and other household property. You are allowed to deduct these costs even if you do not enumerate your moving expenses.
These are just a few money saving strategies that can help you save thousands of dollars when buying a house. Take advantage of these strategies so that your dream house will become a reality.
Citations:
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The author, Kris Lim, is a financial adviser who offers money saving tips for her clients. She recommends her readers to click here if they are looking for high quality and affordable homes.