Buying a home in Boise is the dream for many people. The Boise real estate market is perfect for investors, first-time homebuyers, and those searching to relocate to save some money. Though, there is a lot that goes into buying a home, especially if it is your first time, and many things might slip under your radar. So, here are a few ways that you could save money when buying your first home. You may not understand the importance of these steps just yet, but once you have gone through the home buying process, it will all make more sense. Not to mention you will be glad you took time to do them.
The first thing to do is to start preparing now to buy a new home. The sooner you start, the easier it will be (in theory). However, it is important to note, that it is never too late to start. If an opportunity or situation has arisen that forces to you move on short notice, you can still have a successful move and save a bit of money. If you are a few months or years out from moving, these are the things that you should be focusing on: improving your credit score, lowering your debt to income ratio, saving money, and dejunking your home.
1. Improve credit
Let’s start with improving your credit. Your credit score is one of the first things that lenders look at when they draw up a mortgage. It is a way that they can gauge how reliable you are with money. Now, this may not truly reflect your ability to manage money, but to a lender, the word of your score is one of the only ones they trust. It’s kind of like a grade that you would get on a test. The grade is subjective to the view of the teacher, not the actual ability of the student, but that grade is what future opportunities are based on. In the context of home-buying, this means a lower interest rate on a loan, or a large loan for that matter. So, by all means, do whatever you have to and improve your credit score.
There are plenty of articles online, and plenty of people that will give you their opinion, and not all of them will work for you in your situation. So, it is best to study all the methods you have in front of you and then pick the ones that will fit you best. One thing you could do is to get a credit card (if you don’t already have one) and only use it for credit building. Buy lunch with it one day, and then pay it off. Then, buy groceries with it next month and then pay it off over a period of two months. This cycle will help to give you a positive track record. Now, some say that it would be best to buy enough with the card so that you owe about 1/3 of your limit and to do the above steps from there, always keeping 1/3 of your card used at a time (after you have made the minimum payments). This may work as well as it shows the bank that you can be responsible for longer periods of time with your debt.
2. Lower your debt to income ratio
Next, there is your debt to income ratio. This shows the bank how much of your money is getting eaten up each month by payments to other debts. This is important because it shows them how much you can actually afford to pay. To calculate your debt to income ratio you take all of your payments you have to make on credit cards, loans, etc. a month and divide it by your gross income per month.
As you prepare to buy a home, you may want to try and pay off as many debts as possible. Not only will this help you to save money for a down payment and give you more disposable income to pay your mortgage payments, but it will also show the lender that you can handle a larger loan or a loan with a lower interest rate.
3. Save money
We talked a bit about this in the previous section, but what is so important about saving money when you are prepping to buy a house? Well, when you get a loan from a bank or other lender, the more you borrow, the more you are going to have to pay back and the more interest you are going to have to pay. So, naturally, if you put more money down as a down payment, then you won’t be borrowing as much and your loan will have a much lower rate.
Another thing to remember is mortgage insurance. We will get into that more, but if you don’t pay more than a certain amount on a loan, the lender will require you to buy mortgage insurance. And that is just more money you will have to pay each month.
Now, this may seem odd, but hear us out. When you are buying a new home, you are always worried about space. If you have a lot of stuff in your current residence, then you will think you need a larger house, and very well might need a bigger one. So, go through all your stuff and try to get rid of somethings. This will also save you money in the long run as it won’t cost you as much to move. Less stuff means less boxes and a smaller moving truck.
Don’t buy for the whole amount you are approved for
A lot of people, when they hear back from the lender how much money they got approved for, go out and search for a house that is exactly that amount. This is an error that you, the money conscious, may not choose to commit. Don’t buy more house than necessary just because they are willing to let you borrow that much. Be smart with your money and search for a good deal. This will allow you to borrow less and, subsequently, owe less to the bank.
Buy a smaller house
Along the same lines as the previous section, there are many people that try to buy as big of a house as possible. This is another potential bad move. Buy for what you need, not what you want. If you are looking to save money, try searching for homes that are smaller. As long as you have as much space as you need to live comfortably, then you don’t need much more. Besides, if you sacrifice size, you may be able to get something else you want in a home without spending too much more.
Be ready to haggle and negotiate
The price that is listed on a house is not an absolute. It isn’t like when you go to the grocery store and pick up some cereal, you can offer a lower price. Don’t feel intimidated by the whole experience, everyone haggles and negotiates price when it comes to houses. So, don’t feel shy about giving them an offer that is lower than the asking price— for all you know, they may accept it. When you negotiate and haggle over a price, you will save money, obviously.
It is like when you buy a car. A lot of the time, the price will be raised a bit from what the item is actually worth. So when you go in to buy that car, or home, you can bet that they are expecting you to haggle.
Before you go into a negotiation, though, always have in mind the most you are prepared to pay for the house. The seller most likely has a number in mind of how much they are willing to part with it for. Your job is to make an offer for less than your limit and hope that it falls at or above the amount they are willing to sell for.
Pay 20% or more on your down payment
Ah, here we are, the down payment. A lot of people don’t realize how important the down payment is in the home buying process. The amount you put down on a home will ultimately decide how much your monthly payments are going to be and whether there will be extra fees placed on those monthly payments.
Banks usually want their customers to pay at least 20% of the price of the home down before they will lend you the money. This is so they have some sort of collateral in case you default on your loan. If you pay less than that 20% you will most likely required to purchase mortgage insurance. This will mean that you will have another payment tacked on to your monthly mortgage payment. It isn’t a huge amount, but it can add up over the years.
Pay more than the minimum monthly payment
When you have any sort of loan, it is important to understand how it all works. Usually, when the bank tells you the minimum payment required each month to pay off a loan or mortgage, you are mainly paying interest and a little bit of the actual amount you borrowed. This means that if you pay more than the monthly payment, you can pay more of the principle off faster which means you a) get your loan paid off faster and b) you won’t pay as much in interest. (Ask your lender about your specific loan, but most interest is applied annually or monthly depending on the contract).
Search around for the right mortgage
If you start early, you can really shop around for the right mortgage. We live in a day when banks have to compete for your business so you can go from bank to bank and lender to lender until you find the best mortgage for you. So, if one mortgage is going to cost you 3% interest and another is only going to be 2%, go with the 2% as it will save you money. However, if you haven’t done the preparatory steps we talked about earlier like lowering your debt to income ratio and raising your credit score, then you probably won’t have as many options as the person who does do those things.
Now, obviously there are more things you can do to get a better price on your house, save money, and make the home buying process run much smoother, but this is all the time we have for today. Keep checking back for more ideas on how to save money when you buy your first home. And be sure to give the Hughes Group a call today. They can help you make your home buying dreams a reality here in the Eagle Idaho and Boise Idaho areas. They are just the people to call if you need help in real estate. So, call today!