How to save money on buying a home

There are two ways to save money on buying a house, one of those ways is by finding a seller that will give you a low purchase price, and the other way is to save on the things that are not part of the purchase price, like the interest rate, fees, PMI, etc.

Let's look at these two areas individually:

Saving on the purchase price:

If you want to save money on buying a house, the first thing you have to do is find a house that is not overpriced. In any given area there will be hundreds of homes for sale. Some will fill your needs, some will not, and some will fit your budget, and others will not. So, to start, make a comprehensive list of the homes you are interested in that fill your needs and that fit your price range.

Then be incredibly diligent in looking around. Unless you really look at a lot of homes you won't get a true sense of what is a good deal, what savings are, and what is overpaying. For example, you might have two homes of the same square footage same number of rooms, bathrooms, etc. However, one of the houses might have granite counter tops, hardwood floors, great moldings, high end carpet, three tone paint, recessed lighting, etc. and the other might have laminate floors, laminate counters, one tone paint, cheap carpet, etc. So, saving money on buying a house does not just mean getting the best price, but getting the best value for the price. You can't know what the best value is unless you look around a lot and compare, compare, compare.

Consider more than just the cost of the home. Some builders will throw in incentives like paying a portion of your closing costs, or your HOA fees for six months, or your first few months of house payments, or your appliances, etc. All of these things save you money. So, if you want to save money on buying a home, and you plan to build or buy new, then don't just look at the price of the home, in addition look for buyer incentive. There are a lot of builders out there competing for your business, so find the one that is not only going to build you the home you want at the price you want, and in the time line you want, but also the one that sweetens the deal the best.

If you are not buying new you probably will not be dealing with a builder, but rather a Realtor, or an individual. So, instead of looking at incentives, you want to focus on saving money by finding a motivated seller. A motivated seller is someone who has a reason they need to sell, and who are willing to drop their price if need be in order to get their house sold. Most sellers won't tell you that they are going to be willing to drop their price because then you would never pay full price. So, instead, you need to listen to the reasons they are selling, think about how long they lived in their home, and determine for insight whether or not they are going to be a motivated seller. A seller that says if they do not sell they will just rent it out is not going to be a motivated seller. A seller who says something to the effect of "if it sells great, if not we'll stay" is not a motivated seller. A seller with plenty of equity that has a need to sell make a good candidate. For example, someone who gets transferred out of state for their job is probably going to be motivated. Someone who is under contract with another home is going to be motivated to sell. Look for someone who is motivated and you will be able to get a lower purchase price, better incentives like the seller paying closing costs, etc.

If you want to save money on a house you have to be patient, be able to look around, compare, make an offer, align your financing, etc. If you are in too big of a hurry you will pay the price. This is the same concept as convenient stores. A gallon on milk will likely cost you a third more at a convenience store than a typical grocery store. Why? Because you get it faster. So, take your time.

If you want to save money on buying a house, you need to make sure to have your lending in place before you start looking. This will help you find a home in the right price range, and motivate you to get the home you love for a price you can finance. It also means saved time and hassle later. Time is money. Saving time means saving money.

If you want to save money when buying a home you need to have some money to put towards a home. Having a down payment opens up many loan possibilities, or even the possibility of owner financing. It also means you can avoid some other expenses, such as PMI, which we will get to later. So save money by having enough for a down payment.

Now, let's look at how to save on not just the purchase price, but the other sides of buying a home-the mortgage. Most people focus only on a couple of aspects of buying a home, the purchase price, and the interest rate of the loan. However, if you want t save money you have to recognize the other areas where you are spending money, and the common fees involved with buying a home. Learning how to avoid, or save in these areas means saving money buying a home.

Let's start with PMI because a lot of people are paying this, and many pay it unnecessarily. PMI stands for private mortgage insurance. Basically if you do not put enough money down on your home purchase you will probably be required to purchase private mortgage insurance. Most people opt to have the amount rolled into their monthly payment. This can cost you up to $100 or more a month in addition to your mortgage. This is not paying off your house. So, to save money when buying a home, split the loan into two loans so that you do not have a loan for more than 80% the home value, otherwise you will be paying PMI, or, put at least 20% down. This is going to save you a lot of money on your home.

The next thing to consider is homeowner's insurance. In order to borrow money for a home, the home will need to be insured. Save money on your home insurance by getting the policy through the same company you use for car insurance. Rolling policies together usually means a discount, and thus saved money.

The next fee you need to consider is title insurance. This insurance covers you in case that the person who sold you the house didn't actually own it or if information on the title was false. The fee for this can be high, or low, but the fact is, title fraud is fairly rare, and so the price should be low. If you think the price is high, don't take a standard explanation, instead, ask for a lower fee. Look around and see what is normal. This is not something you should over-pay for, especially since the likelihood of ever using this insurance is beyond rare.

To get a loan you will need to have your home appraised. This is for two reasons, one to make sure you are paying the appropriate price, and second is to determine the current fair market value for your home for tax purposes. Most lenders do hundreds of loans, and they use the same appraiser, so they are getting good deals on the appraisals. Make sure you are not overpaying. If you are charged more than $300 for the appraisal, it would be smart to ask if you can find your own appraiser, as you are sure to get a better deal privately.

You will have escrow fees, which are unavoidable, and generally can't be negotiated. These are for an account to hold the money while the buyer and seller finalize the agreement, and later is used to hold money to pay property taxes and insurance. If it seems too high, check around. Your lender should not be padding the amount, but be safe, not sorry, and check.

Points or origination fees and fees you pay the lender for creating the loan, usually you will work this amount into the loan. Just be aware that a point equals one percent of the loan amount. If you want to save money on your home find a lender that does not charge origination fees, or one whose origination fees are low. Competition for your loan is fierce, and you are sure to find someone who won't charge you these fees.

Most lenders will charge you for pulling your credit report, but if you want to save money you should make sure you are not being overcharged for this. The credit report fees should be less than $50.

Document preparation fees are usually added by the lender to prepare the documents you need for the loan. Once again, this is kind of a junk fee, so ask them to waive it, or at least make sure it is not unrealistically high.

Inspections are not required usually for a new home, but if you buy an older home then paying for inspections is going to save you a ton, especially if the inspector finds something like pests or mold. If they do, you can opt out of the house, or you can have the seller pay to fix the problem, or you can get a discount on the purchase price.

Another area you can't save on, and should not try is with property taxes. Sometimes you have to pay them right away, and you can't save on this, so do not waste your time trying.

You can save money when buying a home if you realize that many of the fees mentioned above can be waived or paid for by the lender or seller. So, ask for this, and finalize who is paying for what before you close.