How to Get the Best Price on a New Home
When you become an adult and land your first job, you also start considering how to best invest your hard-earned money. Some people buy all the things they couldn’t afford before while others spend time traveling, but the most common desire is to own a home.
A home is pretty much the biggest expense you’ll have in your entire life. When you decide to go through the process of buying a home, you also commit to a series of expenses tied to home ownership. From finding a real estate agent, negotiating the price of the house, and closing costs to doing various projects to make it yours, being a homeowner can be financially-draining. But despite it all, the rewarding feeling of owning a space with your name on the deed is worth it.
It’s always best to consider your home as more than “just a house”. After all, it’s actually an investment that can earn you a profit in the long run. So once you’re set on buying a new home, you should already start saving for it as soon as you can.
Get Your Financial Ducks in a Row
According to finance guru, Rachel Cruze, “buying a home is one of the largest purchases you’re ever going to make, so you need to make sure you’re prepared.” Owning a home doesn’t happen overnight, or a week for that matter, since it involves large sums of money and time for negotiations & closing.
However, when you prepare your finances properly beforehand, you can get the home you want without being house-poor and it all starts with saving.
Start Saving as Early as Possible
The National Association of REALTORS 2016 Profile of Home Buyers and Sellers reported that 61% of people buying homes used their savings as down payment. With this in mind, it only makes sense to start saving as soon as you can if you’re planning on buying a home.
Remember that saving is a continuous process. You want to beef up your savings over time so that when the time comes when you’re ready to make the purchase, your finances are also in order.
Have an Emergency Fund
You need to save for more than just the down payment. Cruze suggests that you should also have at least three months worth of expenses in your emergency fund because anything can happen during the buying process. Most financial experts also agree on the concept of “extended savings”. According to wealth management president Dennis Breier, “often, young people have a down payment, but they are poor when they get into the house. At the first sign of trouble with the home, they have no money to fix it.”
While this is an unlikely problem if you opt for a newly-built home, you’d still want that savings readily available for other types of emergencies. You want to be prepared for anything, just in case.
As for the down payment, it seems like buying a new home has become more affordable. You can purchase homes with as little as 3% in down payment.
While this may sound doable to you, you need to listen to the experts. There’s a situation called “over housing” wherein the homeowner pays so little in down payment that they become a slave to the mortgage because of shortsightedness.
Breier adds that potential homeowners, especially young Millenials, should shoot for 20% down payment on 15-year loan term.
Saving for Your Down Payment
While you can take out a loan as the down payment for your home, saving up will make things easier and better for you in the long run. Having a chunk of savings ready to go when purchasing a home also demonstrates that you are financially ready for ownership which places you in a better position in getting approved for a home loan.
You want to start saving specifically for the down payment and not lump this money with the rest of your savings. This way, it’s easier to track how much money you have for the down payment and it’s a great idea to open a bank account solely for this purpose.
Live on a Budget
Second, you need to make and stick to a budget. With home ownership in mind, you need to start budgeting as if you already made the purchase. This is a great strategy so you practice living with the added expenses of your mortgage, utility, property taxes, insurance, and home improvement projects. Of course, you still want to set money aside to build your down payment.
Keep an Eye on Your Credit Score
Third, monitor your credit score since it plays a significant role in your home purchase. it will dictate how much you’ll be able to borrow and the interest rate that comes with the loan. If you want to enjoy a better deal, you should improve your credit score as best as you can.
While you’re at it, you might as well pay off some debts to improve your credit score and remove the extra financial burdens. Paying off your existing debts before you buy a home will make the transition to being a home owner much easier on your wallet.
Plan Out Your Timeline
Have a tentative date when you’ll buy your home so you have plenty of time to get your finances in order. For instance, if you’re fresh out of college at your first job, you may want to rent an apartment first for a while to see if the job and area are worth settling down for.
This is also a great time to start beefing up your savings and prepare yourself financially and emotionally for the new status as homeowner. You don’t want to try to rush this decision because this can impact your life in very significant ways.
Getting the Best Price on Your New Home
Do It Early
If you’ve saved up a sizable down payment, have a solid emergency fund plus some more money for other unexpected costs, you’re most likely ready to make the purchase. Don’t wait too long and purchase as early as you can.
Reason being, the interest rate of homes only rise. Homes are becoming more expensive than ever before so the earlier you’re able to make the purchase, you’ll more likely able to land a mortgage deal with lower interest.
And if you’ve been hunting for that perfect home for some time now, looked at numerous listings and found a few ones that came close to perfect, it may be better to end the search and try to narrow down your options. You want to nail the perfect home that’s a combination of your desired design, location and price among others but you may also need to compromise some aspects if you need to purchase anytime soon.
Also, some people try to time the housing market before they make a purchase. While real estate market evolves in circles, it’s also easy to miss out on the opportunity in buying a great home when you can afford it. The best time is to do it as early as you can, as long as you feel that you are financially ready to make the purchase.
Find a Great Real Estate Agent
Many buyers believe that they can save more money by not getting real estate agent, but this is a terrible idea (unless you’re a Realtor). You might be able to handle the world of house hunting, bidding, negotiating and closing a home for sale, you aren’t prepared to deal with real estate laws or the incredibly lengthy and meticulous that goes into compiling the paperwork. Take our word for it, get a Realtor.
Whether you’re buying a home for the first or fifth time, something’s going to go wrong. There are so many different moving parts that it’s inevitable, which makes having a great real estate agent worth their weight in gold.
Solve Problems for You
First, your real estate agent will iron out the bumps of the buying process so that you don’t have to worry about them. A dependable and trustworthy agent can mean the world of difference between a disastrous home purchase or a painless one.
Experience & Expert Advice
Additionally, an agent not only has years of experience, they can put things back into perspective if you get too emotional. This is a big purchase. You want to think through everything rationally so you don’t overpay by tens of thousands of dollars over the life of the loan. They’ll also be able to lend wisdom and guidance that will help you find the right house.
A great real estate agent can also give you advice on the true cost of the home. If the home is within the right price range, they’ll make sure you know. If the home is priced way above the market, they’ll help devise a strategic negotiation plan to drive it down.
They Know the Right People
It is also worth noting that a great real estate agent has his connections to make the home buying process as streamlined as possible. From mortgage lenders that may give you approval, home inspection companies, and contractors, your agent may be able to connect you with the right people to make the deal go through.
A great real estate agent is not emotionally attached so they’re able to think objectively about the house. The end goal with hiring a real estate agent is to get the home you want at the best price possible.
Get a Feel Of The Market
When you zero in on a neighborhood (or city for that matter), you have to get a feel of the local housing market. How you negotiate for the purchase of a new home will depend on the market where it’s located. For instance, if there are more homes being sold in the area, it’s likely that there’s less demand. This gives you some room to negotiate the home at a your desired price.
However, if homes are selling as quickly as they’re listed, there’s probably zero wiggle room in the price because the seller has no reason to negotiate. Someone else will buy their house at full price.
It’s a great thing that most experts believe that we have a buyer’s market. While you don’t have the total control, you still get some leverage to stir the negotiation process in ways more beneficial for you. According to Jordan Clarke, a San Diego-based real estate agent, “buyers have a little more breathing room, but they’re still not in the driver’s seat.” As example, Clarke indicated that some areas in San Diego are hot, with anything under $700,000 being sold very quickly.
Study the market of your potential home’s area before making a bid so you can give an appropriate price and get better chances of winning the deal.
Get Pre-Approved For a Home Loan
Before you go scouting one house after the other, you want to get the pre-approval letter from your lender. There are many reasons why it’s essential to get approved for a home loan even before house hunting.
First, getting pre-approved means a lender has looked into your financial information and has verified it. That means the lender knows your credit score, how much you earn, how much you owe, and has determined that you’re financially capable of buying and owning a home. Additionally, the pre-approval letter will tell you how much they’re willing to lend should the buying process go through.
For instance, the lender may pre-approve you of $300,000, but you’re looking at home priced way than this. This will give you a price ceiling and keep you from looking at homes that are way beyond your budget.
It is also important to note that the pre-approval process will reveal how much of a home you’d be able to afford, based on the financial information they have. For instance, if you have way too much debt or nurse a low credit score, the lender may assess lower price for a home that you can afford. You may still get the loan you need, but you have to keep your expectations in check.
Lastly, you need to remember that being pre-qualified for a home loan isn’t the same thing as being pre-approved. Anybody can get pre-qualified. That only shows that you have submitted your info to the lender and that you may be able to get a loan. Pre-approval for a home loan means the lender has looked into the information and put a number on how much they’re willing to loan you.
Apart from the pre-approved amount, you must also take into account how much your monthly payments will be and the cost of other related things like insurance, taxes, home repairs and so on.
Consider Multiple Neighborhoods
With your pre-approval info in mind, you can start shopping for homes within that price range in various neighborhoods.
The thing is, the price of homes of similar size can vary wildly depending on the neighborhood. (The price can quite literally swing tens of thousands of dollars by going over a few streets.) Regardless, you should start looking at neighborhoods that you want to live in. For instance, do you want a suburban neighborhood where you’re closer to commercial establishments or a rural one where you can enjoy the peace and quiet?
Second, you also need to consider what your long-term goals are both for career and family. If you and your spouse have kids, a neighborhood closer to great schools might be better for you. You also want to know how long the commute is from home to your work. These things can have a long term impact on your lives so it’s best to do your leg work before settling on a neighborhood.
If you need to gauge the dynamics of the neighborhood, consider driving there at different times of the day and week. The neighborhood may be silent during work hours and weekdays, but it’s lively come weekends. Also give it dry run driving from the location to your workplace so you can time what your possible daily commute would look like.
Expect that neighborhoods with more amenities like public swimming pools, club houses, and/or sports complexes and fields will be more expensive. Neighborhood are more than just the price of homes that are sold there.
Find a Good Lender
The lender you choose will also have an important bearing on the affordability of your home. The lender will be the one to give you the home loan and different lenders will give you different home loan offers as well.
You don’t need to choose the first vendor that offers to let you borrow from them. Instead, look for several more lenders and compare the terms & rates. You might need to come back to your initial choice if there aren’t any other good offers, but at least you took the time to shop around. A great lender will finance a home loan that favors your current financial condition and won’t screw you long-term. Also, a great lender has access to discounts / deductions that’s apply to your situation, which may include packages for first-time home buyers and various down payment options.
Be a Good Candidate
But before you go about shopping for a lender, there are a few things you need to do to make yourself a better candidate for a home loan. First, pull out your credit report to check for accuracy and determine your credit score. Not all lenders will be willing to lend if you fall below their threshold, so anything you can do to boost your credit score the better.
For instance, you may want to use just one or two of your credit cards to keep your finances manageable. Second, try to pay off as much debt as you can, especially those with high interests. Keep paying all of your debts in a timely manner to further improve your credit score.
Ask ALL The Questions
You also need to ask your potential lenders some questions to determine if the loan is right for you. You may want to ask what costs are covered relative to acquiring the home loan (appraisal, closing costs, etc.). It is also important to ask how much of a down payment that they require and if there are costs than can be folded into your monthly mortgage.
Looking for a lender and picking the best one can be time-consuming. However, it’s one of the most important ways to guarantee that you get the home you want without breaking your budget.
Get a Low Interest Rate
The interest rate of your home loan will depend partially on what your lender offers. Ideally, the lowest interest rate available to you is the best one. However, that interest rate depends on a number of factors including the type of interest rate (fixed or variable), loan term, down payment amount, and your credit score.
To lower your interest rate, you need good credit. Bring your credit score up as high as possible to get the best rate possible. It’s also important to put as much down as you can. 20% of the home’s value is the traditional down payment amount since it gives you better negotiating power. If you can go higher without it being a financial strain, do it. This gives you a better interest rate and can get you a larger loan.
Finally, you need to know what type of interest rate is being applied to your mortgage. A fixed interest rate remains the same regardless of the fluctuations in the housing market. Variable interest rates fluctuate based on the condition of the housing landscape. There may be times when the interest rate goes down, while there are times that it goes up.
Carefully study the best loan term based on your financial circumstances. A lower interest rate may be appealing, but it can end up costing you more if it’s on a longer loan.
Negotiate Lower Closing Numbers
Just when you thought the deal is done, now you have to pay the closing cost.
The closing cost is composed of variety of expenses and may vary depending on the state. Typically, closing costs include all the expenses incurred in helping seal the sale of the property, such as transfer taxes and fees for the attorneys, brokers, and surveyors. Basically, everybody who has helped get the home sold will get their share of the pie.
You can’t avoid closing costs in any real estate transaction, but you can bring it down. Some lenders offer loyalty programs and the bank may offer to reduce the origination costs to some degree. You can also have the closing costs rolled into your monthly mortgage and this is a great way to get the deal done quickly without having to shell out thousands of dollars upfront.
Alternatively, you can ask the seller to help pay for the closing costs. This can be advantageous to him as it can quicken the transaction while allowing him some tax deductions.
Consider Getting a Fixer Upper
You can buy a home that’s cheaper than a newly-built one (or even decade old homes) when you opt for a fixer upper. Sure, a fixer upper isn’t all that appealing when compared to a newly constructed home, but you can’t argue with the price.
Cheaper Prices Than New Homes
The price for fixer uppers are not contingent on the housing market in that city or neighborhood. Because there’s work to be done, the seller might be more willing to sell the home at a lower price to get it off the market. It’s also easier to purchase a fixer upper because there’s less competition with other buyers, but you can still increase the resale value if you invest in a renovation properly.
Fixing Increases Resale Value
Some buyers are easily disheartened by the imperfections of a fixer upper. Loose floorboards, saggy carpet, peeling paint, or a damaged roof costs money to fix. Sometimes, these “problems” are worth the effort as it increasing the home’s resale value.
Get it Inspected First
You do want to have the home inspected by a professional though to get a good price. Also, you have to consult with your lender since fixer uppers that need major work may not qualify for home loans.
Still, if you play your cards right, you can easily turn an unappealing home into a beautiful one without shelling as much money for a brand new home.
Negotiate For Including Appliances
When you negotiate for a home, anything inside it becomes negotiable as well. Even if the seller did not explicitly say that the refrigerator is included in the home price, it still doesn’t hurt to ask.
Oftentimes, appliances that are built-in are included into the home’s selling price, including the washer, dryer, microwave, and oven. Custom-built ones may be negotiated separately.
However, if you’re negotiating for a home in a hot market, you’re likely to find that these appliances are in fact rolled into the price to make the offer more appealing to buyers. This can be a great deal as it will help relieve your task of purchasing new appliances and having them installed properly by a contractor.
Similarly, consider negotiating for little extras as well. What about that one year warranty left on the air-conditioning unit? You can impress to the seller that the warranty will help you feel more secure when you settle into the house.
Buy During Off Season
In North America, spring and summer are the best seasons to sell a home, but that doesn’t mean that you should buy during these seasons. In fact, if you buy during the off-seasons, you’ll probably get a better deal.
Off season home buying generally falls on winter when it’s “too cold” to sell their homes. This also means that sellers who list their home during this time of year are more open to negotiate pricing to close the deal. Buying off season can be at your advantage since there are less homes for sale and fewer people looking to buy them. It’s easier to bid knowing this.
Realtors and contractors are less busy too this time of the year too and they’re more likely to accept any business they get even at a lower price.
Timing your purchase based on the market isn’t always the best decision, but it pays to know when there’s less competition and sellers are more desperate to sell their homes quickly.
Don’t Buy The Biggest On The Block
The price of your potential home is just one piece of the cost and bigger houses aren’t always “better”. Bigger homes usually cost more in the long run.
A bigger home means you need to heat and cool a larger space which guarantees a higher utility bill. You’ll also have to spend more for flooring (if you decide to change it up) and even more for maintenance. When the time comes to renovate, you’ll spend more on roofing, windows, and even garden landscaping. You’ll need more concrete or stones for your walkway and your contractors will need to work more hours.
Additionally, bigger homes sitting in exclusive neighborhoods also mean more expensive insurance and taxes on top of the higher monthly mortgage payment.
Don’t decide based on the size of the house because everything will cost proportionately. A mid-grade house can end up being more valuable to you if it fits your lifestyle and budget.
Buying a home is an enormous purchase and you need to look all the angles to get the best price on a new home. If you’re a first time home buyer, there certainly are a lot of things that you need to learn. Do your research and get the help of an expert so you can make the best decisions.
Remember that buying a home is a huge commitment that doesn’t happen overnight. There’s no turning back once the process begins. Take your time and inspect every nook and cranny of the home for sale. There are many ways to save money on the price of a new home if you shop carefully and negotiate properly. You may have to shell out money for certain services like hiring a Realtor or getting a home inspector, but these will save money in the long run.
Don’t shopping at the first home you see that’s below or within the price range. You want to make sure that the home you pick will serve you for the long-term. Think this through and don’t rush. It’s not a pack of gum at the gas station so make sure that you know all your options before making your final decision.