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Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

See more from Debt

How Much You Should Spend On Your Home – Plus 4 Ways To Save!

October 20, 2020 by Minority Mindset Team

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Minority Mindset Team October 20, 2020

Four Ways To Save Money When Buying A Home

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A little bit of research can go a long way when buying a home. In some cases, making specific choices or negotiating certain aspects of your mortgage loan can save you tens of thousands of dollars or more. 

If you’re thinking of buying a home in the near future, these tips can save you a small fortune over time.

In this article, we show you four ways to save money when buying a home:

  1. Find the most competitive mortgage interest rates.
  2. Avoid private mortgage insurance fees.
  3. Negotiate a 7-day contingency.
  4. Make strategic mortgage payments.

You can use the tips below to help guide you along the homebuying process.

Before you read on, make sure you go and check out our resources on paying off your mortgage faster so that you do save money and you expand your financial options.

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How Much Should You Save Before Buying A Home?

Buying costs aren’t the only thing you need to budget for.

After all your home-buying expenses are covered, you’ll still want to have six months of living expenses safely tucked away in a savings account in case of an emergency.

Unexpected life events happen to everyone at some point throughout their lifetime.

You may lose a job or incur medical expenses. Or, your car might break down, demanding a fast cash payment to get it fixed — so you can get to work.

Here’s a look at what living expenses might look like after you buy a home:

  • Monthly mortgage payments
  • Water and utilities
  • City requirements such as snow removal and lawn care
  • City expenses such as trash pickup
  • Home maintenance and repairs
  • Property Taxes
  • Homeowner’s insurance
  • Usual living expenses (Food, clothes, insurances, debt payments, etc.)

Before you consider purchasing a home, make sure you’re financially prepared for emergencies by building a savings account equal to six months of what your living expenses will be as a homeowner.

Save Thousands Of Dollars When Buying Your New Home

Understanding how mortgages work can save you a small fortune when purchasing a home.

To keep the most money in your pocket, compare lenders to find lower interest rates, avoid paying for private mortgage insurance, negotiate a 7-day contingency agreement, and make strategic mortgage payments.

Four Ways To Save Thousands Of Dollars When Buying A Home

Buying a home is complicated and most people aren't super experienced in how the entire process works from start to finish.

But, educating yourself before buying a home can save you thousands of dollars over the lifetime of your loan.

Keep reading to find out how to slash unnecessary costs and interest, plus discover a strategic mortgage payment strategy that can save you $247,220 in interest over the lifetime of a 30-year mortgage.

1. Find Competitive Mortgage Interest Rates

The interest rate you pay on your mortgage loan affects your pocketbook in two ways:

  1. Your monthly mortgage payments
  2. The total price of your home

Before you agree to finance your home through your favorite banker, take a few minutes to compare rates from several lenders.

Comparing interest rates before you choose a lender can save you thousands of dollars.

For example, if you get a 30-year fixed-rate mortgage loan for $300,000:

  • An interest rate of 4.5% would result in mortgage payments of about $1520 per month, and your total home cost (if paid over the full 30 years) is about $547,220.

    In this case, a 4.5% interest rate costs you $247,220 in interest over 30 years.
  • An interest rate just one percent lower – at 3.5% – results in mortgage payments of $1347 per month, and your total home cost (if paid over the full 30 years) is about $484,968.

    In this case, a 3.5% interest rate costs you $184,968 in interest over 30 years.

In the example above, a one percent difference in interest saves you $173 per month and $62,252 over the lifetime of your mortgage.

Before you choose a lender, compare interest rates!

The quickest way to research mortgage lenders is by using a comparison site such as Credible. Credible allows you to quickly compare rates from vetted lenders, so you can find rates in minutes.

While you’re on the site, you can also prequalify for a mortgage loan and get an approval letter in minutes.

Credible is easy to use and does not affect your credit score.

Finding the lower interest rates on your mortgage loan saves a significant amount of money on your monthly payments and your total purchase price.

Before you choose a mortgage lender, shop around to find the most competitive interest rates, which can save you tens of thousands of dollars over time.

2. Avoid Private Mortgage Insurance Fees

You can save thousands of dollars per year by making a minimum 20% downpayment on your home, which allows you to skip the hefty cost of paying for your banker’s private mortgage insurance.

Private mortgage insurance (PMI) is a type of insurance that protects your banker in the event that you fail to make your mortgage payments.

PMI provides no benefits to you, the buyer.

The insurance is costly, usually between .5% – 2% of the total price of your home annually. 

  • For example, if you buy a $285,000 home, you’ll pay about $3,420 per year ($285/month) for private mortgage insurance.

PMI is a complete waste of your money, but you can skip the expense altogether by making a downpayment of at least 20%.

Instead of paying for your banker’s costly private mortgage insurance, save up 20% of the purchase price before you finance a new home.

60% of homebuyers save their money to come up with a downpayment on their homes, and 38% use proceeds from the sale of a previous home as their downpayment.

If saving 20% seems daunting, or if the sale of your current home won’t raise enough money to meet your goals, consider picking up a side hustle or building an extra stream of income to help you save money quicker.

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3. Negotiate A 7-Day Contingency

Negotiating a 7-day contingency helps ensure that you don’t get surprised with thousands of dollars in repairs as soon as you move into your new home.

When you’re negotiating the price of your home, ask about working in a minimum 7-day contingency agreement that allows you to back out of the deal for any reason – without recourse.

During this 7-day period, hire a private property inspector to check the home for critical issues. 

If the inspection uncovers critical issues with the home, you can back out of the deal or try to renegotiate the price to cover repairs.

When you’re negotiating the loan itself, ask your banker for a loan with no prepayment penalties, and consider lenders that offer no-fee financing.

These two considerations can also help you save thousands of dollars over time.

The 7-day contingency is a critical aspect of negotiating with the seller, and you should use the time to hire a private inspector to avoid surprise expenses. 

4. Make Strategic Mortgage Payments

While we’re on the topic cutting home buying costs, we’d be remiss if we didn’t mention a simple mortgage payment strategy that can save you tens of thousands of dollars over the lifetime of your loan.

Biweekly mortgage payments can save you a small fortune on interest.

Here’s how it works: Instead of making one mortgage payment each month, split your usual payment in half and pay it every other week.

For example, if your monthly mortgage payment is $764, you would instead pay $382 every two weeks.

In the example above, if your full mortgage loan was $160,000 at 4% interest on a 30-year fixed rate, you would save $18,703 and pay off your home two and a half years earlier than expected.

Strategic mortgage payments only work if you’ve taken out a loan that does not penalize you for prepayments and if your lender is willing to set up biweekly payments.

Before you choose a lender, ask for a loan with no prepayment penalties that will allow you to pay biweekly.

Compare Rates Easily With Credible*

How Much Does Buying A Home Cost?

If you’ve never owned a home before, you might think “Well, I pay $900 a month in rent right now. Wouldn’t it be better to invest that $900 into a home?”

That kind of thinking could get you in trouble – especially when bankers are working harder than ever to earn profits, which that can only do by convincing you to go deeper in debt.

The reality is that there are several expenses related to homeownership that you don’t have to deal with if you’re a renter.

In addition to putting a downpayment on a home and making monthly mortgage payments, homeowners also pay for:

  • Closing costs and miscellaneous expenses at the time of purchase
  • Mortgage loan interest
  • Private mortgage insurance (but we can show you how to get around this!)
  • Home insurance
  • Property taxes
  • Maintenance and repairs

Downpayment

The size of your downpayment has a massive effect on the cost of your home and on your monthly mortgage payments.

We recommend a downpayment of at least 20% of the purchase price of your home.

If you put down less than 20% of the price of your home, you can expect to pick up the bill for your lender’s private mortgage insurance (PMI).

To ensure that you don’t throw your money away on expensive insurance that does nothing for you (PMI protects your banker only), make a minimum downpayment of 20% when you purchase your home.

Compare Rates Easily With Credible*

Expenses

Buying a home costs more than the listing price. 

There are closing costs, insurance, taxes and other expenses that must be paid at the time of purchase.

Here is a list of the expenses involved in buying a home:

    • Down Payment: we recommend 20% of purchase price
    • Closing Costs: 1.5% – 2.5% Of Total Purchase Price
    • Reserves: Equal To Two Mortgage Payments
    • Additional Expenses (survey, appraisal, and inspection fees): $600 – $2000
    • Home insurance and property taxes: Equal to six  months of taxes and insurance

If you can pay the above costs at the time of purchase, then you’ll only need to take out a loan for the mortgage.

That means you can buy a better home because you won’t be paying interest on those expenses or adding them to your monthly mortgage payments. 

What Size Mortgage Payments Can You Afford?

Now that you understand the costs involved in purchasing a home, let’s take a look at what size monthly payments you can afford.

We recommend a monthly mortgage payment budget of no more than 25 – 27% of your net income (your take-home pay, after taxes).

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*Advertisement from Credible Operations, Inc. NMLS 1681276, not available in all states. Click here for important information about Credible’s licenses. Address: 320 Blackwell St. Ste 200, Durham, NC, 27701.

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Written by Minority Mindset Team.

The Minority Mindset has nothing to do with the way you look, your ethnicity, or your skin color. It’s a mindset. #RethinkRich

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Advertiser Disclosure

Our promise to you.

Minority Mindset, LLC is an independent, advertising-supported publisher. We are not an investment advisor. Always do your own due diligence and never blindly listen to a random article on the internet. We do our best to provide financial education with our free videos, articles, tools, and other self-help content. But these are for informational purposes only, they’re not investment advice.

Minority Mindset does not and cannot guarantee the accuracy or applicability of any information regarding your individual circumstances. The examples we provide are hypothetical and we encourage you to get advice from a qualified professional regarding specific investment, tax, legal, and financial issues. Previous market performance does not guarantee future performance.

We want everyone to be able to make educated financial decisions. We do not feature every company or financial product available. However, we’re proud of the financial education and guidance that we provide at no charge.

We’re paid by our brand partners and advertisers. This may influence which products we mention, review, and where they appear on our site. But it does not affect our recommendations or advice.

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