7 Tips To Save Money as a First-time Homebuyer

tips for first time homebuyers cover photo

With rising property values and interest rates, homebuyers need to get smart in order to stay on budget and save on their real estate purchase. In most areas, you’re likely to pay at least full asking price, if not more. But there are still strategies you can use to help lower the costs associated with buying a home. Check out these seven cash-saving tips for first-time homebuyers.

1. Understand what you can afford

The first step in buying a home isn’t scheduling a slew of showings. It’s talking to a mortgage lender so you know exactly how much you can spend — both in terms of getting approved and staying within your own personal budget. When you chat with a lender, you’ll get an idea of what type of interest rate you qualify for and how much your down payment will impact your monthly costs.

You’ll also discover other related expenses, such as private mortgage insurance, real estate property taxes for the areas you’re exploring, and closing costs. All of this upfront research ensures that you completely understand all of the costs associated with buying a home, both upfront and month to month. That way you won’t be surprised by unexpected bills once you purchase.

2. Shop around for the best mortgage rate

One of the best ways to save money both monthly and overall is to compare mortgage rates. Even a fraction of a point can make a huge difference in how much you pay each month (and over the course of your mortgage). Here’s an example with a $350,000 mortgage. A 5.75% interest rate would amount to  monthly payment of $2,043 in principal and interest. Bump that to 6.25% and that payment increases by over $100 to $2,155. Over the life of the loan, you’d end up spending $40,000 more with the higher interest rate. Compare multiple lenders to find the most competitive loan terms, including your rate.

3. Increase your credit score

Your interest rate is heavily influenced by your credit score. Spending some time on improving your credit score before you buy a house can make a huge difference. First, check your credit report and make sure there are no fraudulent accounts or inaccurate negative entries. You can dispute those to potentially get them removed from your report. It’s also important for your credit score to pay your bills on time and lower any high-interest debt, like credit card balances. Being consistent with these tips over time can boost your score and help you qualify for a lower mortgage rate.

4. Compare mortgage fees

The mortgage with the lowest rate isn’t necessarily the cheapest. Before you choose a specific home loan or lender, ask about all the fees involved. Some lenders, for instance, may charge an origination fee to cover the administrative costs associated with making the loan. Different mortgages also have different built-in mortgage insurance fees. Conventional loans require private mortgage insurance (PMI) if your down payment is less than 20%. FHA loans require a similar mortgage insurance premium (MIP), regardless of the down payment size.

5. Make a larger down payment

Putting more cash towards your down payment can help you save money in a number of ways. First, it reduces the balance of your mortgage, which lowers the amount of interest you pay over time. It also keeps your monthly payment lower because you don’t have as much money to pay back. And if you’re able to put down 20% of the purchase price, you could eliminate mortgage insurance fees to save even more money.

6. Choose a shorter mortgage term

Interest rates are influenced by a number of factors, including the length of your mortgage term. The longer the term, the higher interest rate you’ll pay because the lender has to assume risk for more time. The most common mortgage term is 30 years, but you can qualify for a much lower rate by taking out a 15-year mortgage. Your monthly mortgage payment will be higher because you’re paying off the loan in half the time. But if you can afford it, you could save an exceptional amount of money.

7. Shop around for homeowners insurance

If you have a mortgage, you’re required to have a homeowners insurance policy to protect your home and personal property in case of covered damages or theft. While your policy is charged on an annual basis, it’s split up among your 12 monthly mortgage payments. Your mortgage servicer holds the money in an escrow account, then pays for the policy on your behalf when it’s due.

This structure means that you must account for your homeowners insurance as part of your mortgage payment. A $1,200 policy, for instance, adds $100 to your budget each month. Use a home insurance marketplace like Matic to get quotes from multiple carriers. That way you can find the best coverage for the least amount of money.

Buying a home for the first time comes with a lot of expenses, even beyond the sales price of the house. Start planning early so you know what to expect every step of the way. And when you’re ready to shop for a home insurance policy before closing, compare policies and get a quote in just a few minutes with Matic.

*This Blog is made available by Matic for informational purposes only. It contains general information regarding insurance and is not intended to solicit or sell specific insurance or provide financial advice. You should not act or refrain from acting based on the information contained herein. For insurance related needs, you should consult a licensed insurance agent. Matic disclaims all liability for actions taken or not taken by you based on the contents herein. This article is provided “as is” and Matic makes no representation that the content contained herein is error free.