Incorporate these tips to help lower your home buying expenses when your offer is accepted.
The housing market is tough; interest rates are hovering at or around 6%, and inflation is bumping up the cost of everything you’ll want to purchase for a new place once you find one. No matter your offer price for your home, it can be helpful to know how to save money where you can during the buying process — especially if you’re a first-time home buyer. Money saved can be used for everything from furniture and appliances to home maintenance costs or putting some aside for emergencies. If you’re looking for ideas, here are 10 ways to cut your costs when buying a house.
1. Shop around for closing costs
These are the fees and taxes you pay, outside of a down payment, that can add anywhere from 2% to 5% of your home’s purchase price. If you’re buying a $300,000 house, that’s $6,000 to $15,000.
Closing costs include things that are must-pays, such as the remainder of the property taxes for the year, homeowners insurance and special real estate taxes. But some fees are negotiable.
Look for savings in section “C. Services you can shop for” on your Loan Estimate details. That includes pest inspection fees, survey fees, insurance binder, lender’s title policy, settlement agent fee and title search. The lender requires you to pay for these services, but you can choose who you purchase them from, giving you the ability to pick a less expensive provider.
Another place to mine for closing costs savings is the loan origination fee — money charged by the lender for processing and, sometimes, underwriting your loan. You can simply ask for a reduction, see if you can get the lender to give you some credit for all or part of the fees, take a higher interest rate to lower upfront costs or even ask the seller to contribute to the closing costs.
2. Shop around for lenders
You wouldn’t buy a TV without comparing different brands and prices. When shopping for a mortgage loan, think of it like any product you’d purchase — it could save you money over the life of your loan.
While it’s important to compare rates (which are based on the price of the home you want, your loan amount, your credit score and your down payment percentage), there’s more to consider. This includes the type of loan you want — 15-year or 30-year, fixed-rate, adjustable rate, something government backed or from a private lender — or maybe you’re a first-time homebuyer and eligible for a particular program. For example, if you’re a veteran or active-duty service member, you might consider a VA loan.
Tip: Bookmark this list of 25 questions to ask lenders when you’re shopping around.
3. Visit as many homes as you can before you commit
The more homes you tour, the more knowledge you gain. And the more knowledge you gain, the better you’ll be at understanding what makes a good deal. The median homebuyer takes three private tours and visits one open house during their home buying journey. Touring homes online can certainly give you the inside scoop, and you can look at and compare many, many more homes if you’ve got the information right at your fingertips.
4. Know your deal breakers
You absolutely must have a yard, you say. But does that mean a quarter of an acre or three acres? You don’t want to end up spending extra money on selling your home or investing in upgrades if you could have waited on that better house. Avoid buying a home you’ll later regret by taking time to figure out your wants and your needs (use this checklist to get started) and learn to make compromises with yourself — and anyone else you might be purchasing a home with.
5. Try to buy in a slower season
For many home buyers with children, there’s a spring scramble to get in before summer so the kids can meet other kids and get acclimated and ready for the school year. That usually means more competition. While there might be fewer choices on the market in the fall, you may also find deals from motivated sellers who missed out on the spring season.
Then again, the dead of winter, especially in a northern region, is a great time to avoid competition. Added bonus: you’ll see a home’s true colors when the wind is howling. Are there drafts around the windows? Is the heat working? Is all the heat going straight out of the roof? Knowing these factors in advance may help you save money by avoiding unwanted maintenance or upkeep down the road.
6. Save for a higher down payment
Most first-time home buyers (64%) put less than 20% down on a house. But if you don’t put down 20%, you’ll have to pay private mortgage insurance or PMI, which will add to your monthly payment. The typical home value in the United States is $349,816. If you put down 5% ($17,491) with an interest rate of 5.492% on a 30-year fixed mortgage, you’d pay about $210 in PMI on top of your principal and interest of about $1,885. (There are ways to remove your PMI — if your home value has increased so that you have at least 20% in equity, you can request an appraisal to remove your PMI. You can also refinance to remove PMI if rates are better than your current mortgage rate.)
If you put down 20% ($69,963) with the same mortgage, you don’t need to pay PMI and your principal and interest total $1,588. Assuming taxes and insurance are the same, you’d save roughly $500 a month if you put down more. This will add up in savings over the life of the mortgage. Every additional percentage you add to your down payment can help take off a little bit of your monthly payment.
Tip: Looking for ideas on how to save more for a down payment? Watch a Zillow video on how to save for a house.
7. Find a real estate agent who will negotiate the deal
No matter how many homes you may have bought or sold, it’s good to have someone on your team who’s really got your back. A good buyer’s real estate agent knows the market and the inventory, can make recommendations on lenders and (attorneys, if required), is a skilled negotiator and can help you make an offer based on market conditions. To find the right agent, get referrals from friends and family, search an agent directory, and then interview at least three agents to find one you really hit it off with.
8. Find a first-time home buyer grant
A grant is money you don’t have to pay back. You may be able to use a first-time home buyer grant to help cover your down payment and closing costs. Sometimes grants set aside for first-time homebuyers will include someone who’s purchased a home before. So, don’t dismiss these grant programs outright. (The grantor will let you know if you’re eligible.) The federal government has a program through Fannie Mae, and many private banks have programs, as does the non-profit public benefit corporation National Homebuyers Fund.
9. Bundle inspections
It’s tempting to forgo a home inspection, particularly in a competitive market with little inventory. That’s your choice as a buyer, but it could come back to bite you down the road — after you’ve spent thousands of dollars on repairs that could have been avoided. You also might want a pest inspection. And some states require an official wood infestation (termite damage) report with every real estate transaction. It’s possible to save some money if you can group inspections.
On its own, a home inspection typically covers the lot, the exterior and interior (including the attic and basement), all the mechanicals and utilities, the appliances and foundation and costs on average $300 to $450. A home inspector won’t necessarily check for pests. A pest inspection alone might be around $100, but including it with your home inspection may add only $75 to your bill. The other inspection you might want is for radon, an odorless, colorless gas that seeps into a home’s foundation. Radon is the leading cause of lung cancer deaths among nonsmokers in America. Many home inspectors offer it as an additional service, or you can hire a radon specialist.
10. Research home warranties
These service contracts can help you cover the costs of repairing or replacing certain parts of your home during the first year — appliances and systems like your HVAC. Depending on the coverage level, you might spend anywhere from $300 to $800, and there’s usually a deductible. You might be able to negotiate the cost of the warranty with the seller. They may even pay for it in full, especially if they’re looking for a quick sale on a home that hasn’t been updated.
While it may seem like a home warranty is worth the purchase, it may not always be the case. Be sure to read the fine print and understand what’s covered to get the most out of the warranty. For example, there could be a clause about improper maintenance. You may not be protected if the previous homeowner didn’t maintain the system properly.