Save Money Buying a House
I have always loved real estate. I first got hooked when I was a teenager watching HGTV shows like Income Property and House Hunters. Then I bought my first home with my husband when I was 20 (check out the house tour!) and dove head first into home ownership. At that time in my life, we were at a crossroads, living with my parents for a few months while searching for a house and my husband worked. So, I was by myself during the day in my parent’s house and spent every hour for almost two months separating the hairy process of buying a house with a fine toothed comb. Now, three years later, we bought our second home – an investment rental property – and I did it all again. Here’s a glimpse into what I’ve learned about buying a house that I hope can save you some money.
1. Your Top Criteria Should Be Resale Value
One thing I know is that the average American adult moves 9 times in their life. So whether or not you think you found your “forever home,” you are definitely going to lose money if you pick a house without considering resale value. A lot of things impact resale value. One good indicator: how fast it’s moving on the market NOW. Are you looking at it while it’s sitting on day 150? Figure out why. The easiest way to be sure your home will stay at a decent resale value, even if the housing market tanks, is if you bought in a mature neighborhood. New developments tend to fluctuate in price because a lot of things can happen to the development (a new apartment building goes up next door, a busy road is connected to the neighborhood, etc). You can check the market value of any home on the site zillow.com (not super accurate, but close). This also gives you the past ten years worth of price fluctuation so you can see what resale value the home has had in the past.
This is my home’s market value according to Zillow over the past ten years (looks good!) versus a home that was purchased new construction and then went through ten years of neighborhood changes and price fluctuations.
2. Buy Near Water
Speaking of resale value, buying near water will always help your home appreciate in value. Any body of water will do, but this is especially true with lakes and oceans. People gravitate towards water, always have and always will. Even houses in new developments will cost slightly more than their neighbor’s if they sit on a little drainage pond for the area.
3. Use a Real Estate Agent
It costs very little to use a real estate agent compared to all the value they provide. Usually agent fees cost 6% of the purchase price of a home (3.3% to the seller’s agent and 2.7% to the buyer’s agent) but the seller pays that all. The buyer, YOU, only pay for the real estate company fee (usually about $400). Your real estate agent is DEFINITELY worth $400 for all they provide; expertise, coordinating showings, organizing and filing paperwork, and tons more. If you need an awesome realtor in the St. Cloud area, I would highly recommend Freddi Walls for her patience, availability, and hard work ethic.
4. Understand the Market
Often I hear people who plan to buy their first house telling everyone they want to get a good deal. This is my husband and I to a T. We are always ones to hold out for a good deal. But when buying your first house, you are going to save more money by timing the market than low-balling offers on houses. The real estate market is fickle and changes often. Your realtor will have insight as to whether or not most houses are selling near asking price or significantly below during a particular month. As a general rule, the market declines in the late fall and winter and is at a peak in spring and early summer. You want to buy when the market is in a decline so as not to overpay on your home. Stephen and I are a part of the St. Cloud Real Estate Investors Association and each month our meeting includes a market update. Here’s a link to real estate statistics in the national market and statistics to understand the St. Cloud, MN local real estate market. Looking at this data can help you determine how many houses are selling, for how much of their asking price, and how strong the real estate market is as a whole.
5. Put as Much Money In A Down Payment as You Can
Once you’ve found your house, buying it is a whole other venture entirely. This is the part where you can save thousands by heading my advice. Putting a large down payment on your house (20% please) is a clear choice for two reasons: you will get a better interest rate and you will avoid paying PMI. Your interest rate greatly effects how much you pay month to month on your mortgage and ultimately how much you pay during the life of your loan. A person with a $150,000 house who puts 20% down will pay $231,906.94 over the course of 30 years if they get a 5% interest rate. If you get a 4.75% interest rate, you’ll only pay $225,351.65, saving you $6,000 and more than $40 a month off your mortgage payment. PMI is private mortgage insurance. This is a fee tacked on a home loan that doesn’t qualify as conventional because it doesn’t have 20% down. Basically the bank is saying, “You don’t have enough skin in the game, so if we’re going to loan you more than we’re comfortable, you’re going to pay us a little extra.” Money paid towards a PMI is money better spent thrown out a car window. At least then a homeless person can pick it up and use it.6. Get a Home Inspection
Home Inspections are this pesky little step that might seem unnecessary if you have owned a home before and think you know what’s up or are buying a new construction and think there can’t possibly be something wrong – it’s brand new! However unnecessary the step might seem, it only costs about $400 and can save you a TON of money if put as a contingency in your home’s purchase agreement. Even if they don’t find anything horribly wrong, an inspector checks everything from electrical outlets to drain clogs and gives you an itemized list to work towards fixing when you move in. If the inspector does find something alarming with the home–serious mold, an uneven foundation, a roofing flaw–you’ll be thanking your lucky stars you have the ability to walk away from the purchase. I know a great inspector in the St. Cloud area who is very reasonably priced, Greg Theis at Get Home Inspections.
6. Shop Around for Insurance
Shopping for insurance can be as simple or complicated as you make it. Some let their real estate broker hook them up with an insurance company. I did this through Edina Realty when we purchased our first house. I asked the real estate brokerage to help me find home insurance and they quoted me the company that gave them the lowest quote. I did my due diligence and shopped around myself to make sure I was getting the best deal. Turns out, the easy way was the best way. I could not find a quote lower than the one Edina fetched me. But shopping around for the best insurance is a really important task that can save you literally THOUSANDS over the period of time you live in your house.
8. Check for Tax & Property Liens
Usually a title company that facilitates closing on a property will investigate any liens that are attached to the property. A lien is money owed from the previous owner that needs to be taken care of before closing on the home. Typically liens are not the responsibility of the new owner of the property, but you have to be careful to clarify this so you don’t get stuck with delinquent expenses. You can call your county’s recorders and auditors offices to get information about tax and property liens, or you can ask your real estate agent to look into it for you.
9. Ask For Home Improvement Store Gift Cards as House Warming Gifts
Once the actual day of closing has passed, you might be excited to throw a house warming party. Put the word out there you want gift cards to home improvements stores like Menards, Home Depot, or Lowes as gifts instead of normal presents which are usually decor, alcohol, and the likes. Receiving gift cards will save you a bunch of money you would’ve otherwise spent. It’s amazing how much it costs to set up house and how many practical things you never realized you didn’t own until now. You now have to get a drill to hang things on the wall, a shovel for your front steps, a lawn mower for your grass, a garden hose to flush your water heater, and all of it is expensive. Those gift cards will save you so much money, and they will not be frivolous the way traditional house warming gifts are.
Whether you’re planning to buy a house in the new year, hoping to buy some time in the future, or will buy another house when you’re finished living in your current place, I hope this article helped you! Please share if you learned something or know anyone getting into a real estate purchase. Thanks for reading!
