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Buying a Home and Saving Big Money

SAVE BIG:
Here is the one thing that you can do to save big money on your home purchase. Spoiler alert…it isn’t making a low-ball offer on the home purchase. If you think that then you will be shocked by what the mortgage insiders know that can really save you big. There is a way for you to save big and it is so easy you will wonder why nobody told you this as soon as you started looking for a house. As a real estate agent, I want my buyers to look back on their purchase as one of their best financial decisions. I want buyers to understand how to save big.

A BONANZA OF SAVINGS:
When I meet buyers I see that they are frequently not looking at the one thing that can really turn their home purchase into an incredibly wonderful financial decision. Most are looking exclusively at the price of the house. It isn’t surprising that just about everyone starts out thinking that paying as little as possible for their dream home yields the biggest savings. That’s why most buyers miss the bonanza of savings that can be theirs apart from the purchase price. You hear stories of a buyer getting a house for “a steal”. Everyone wants a great deal. Everyone. The trouble is that most buyers are convinced that the way to save big is to make a low offer. Mortgage insiders know where the huge savings occur.

SELLERS HAVE INFORMATION:
Sellers are very informed. I have been a real estate agent for decades. I know that sellers are looking for a fair price and they are very well informed. Most will weigh all the possibilities and then make a prudent decision on the price they will accept. With the advent of the internet so much information is available online. Sellers can easily find out the price at which comparable homes have sold. Their real estate agent will be able to tell them the rate at which comparable homes are selling. If twelve comparable homes sold in the last 6 months, then the seller would expect the same thing to happen this year. Yes, there are factors to prevent that from occurring. Two such factors would be a recession or a high rate of joblessness. Those factors would likely reduce demand.

DETERMINING PRICE:
Barring some negative economic downturn the seller expects their home to sell at the same rate as previous homes. If there are only 4 comparable homes on the market and demand is the same as In the last 6 months there may be even more competition. In fact, there may be factors that will cause their home to sell even faster and/or for a higher price. One of those factors is that a local industry has expanded doubling their workforce. Supply and demand are always at work Supply that is less than demand works in the favor of sellers. That could drive up price or cause the home to sell faster. Sellers act on lots of advice found online and from their real estate agent.

FIND FINANCIAL FREEDOM:
There are myths and exaggerations that convince buyers that price is the only way to save big on your home purchase. It is easy to miss the real bonanza for saving because focus on price seems to dominate the home search. It is only natural. After all you compare prices as you go from house to house trying to find the one for you. As you look at listings and talk to your friends and family you undoubtedly talk about what you can afford to pay for a house. Price dominates and takes your focus off of what can really save you money. There is a bonanza of savings and it has nothing to do with the price you pay. Finding that bonanza of cash can change your life giving you thousands of dollars to fund your retirement account, or a college fund for your kids. It can bring financial freedom because the numbers can be huge.

DON’T LOSE THE DEAL:
Knowing how to save big apart from sales price can also help you not to lose your dream home during negotiations. I deal with hundreds of people each year who want to find their dream home. Frankly, their dream home isn’t always easy to find. Some buyers have very specific needs and wants. They may be looking for a designated home office hidden away from household noise or separate living quarters for Grandma, or an art studio, or a 4-car garage for the car enthusiast. Even if you don’t need something so unique you will probably discover that searching for a home is no easy task. There are so many things to consider such as the distance to work or friends or the beach. If you have kids, you are surely thinking about schools. Once you find the home of your dreams you don’t want to lose it in negotiations. After spending lots of effort to find a home you don’t want to make a low offer and have another buyer get the house instead of you. Remember, when you make that low offer the seller doesn’t have to give you a counteroffer. If the seller receives multiple offers, they can respond to whichever they chose for whatever reason they choose. The dilemma is that you want the house but you also want to save as much as you can. Saving is good. Losing the opportunity to buy your dream home is bad. You can save big and still buy your dream home. In fact, that is exactly what you want. That should be the goal of every buyer. Minimize the risk of losing the home you want while making sure that homeownership is part of a strong financial plan. I have seen buyers lose in negotiating because they desperately and falsely believed that a low-ball offer was their only way to minimize costs.

MORTGAGE INSIDERS KNOW:
Here’s how you can save money without fixating on making a low offer. You can win at saving big while getting the home you want to buy. You can get big savings. Stop seeing purchase price as the only way to save on your purchase. Mortgage insiders know that what you pay in mortgage payments can be your biggest way to save on your dream home. That’s right. Mortgage insiders know that the amount of money you pay on your mortgage loan can be huge. Use this insider knowledge to save big, maybe up to hundreds of thousands of dollars on the real cost of your home purchase. Move your primary focus from purchase price. Instead look at what can yield big savings. Look at the terms of your mortgage loan.

PAY ATTENTION:
Getting a mortgage loan that saves you money involves paying attention to the rate of interest, the costs to close your loan and the term of your loan. Don’t get tripped up thinking that the rate of interest on your mortgage loan is your only concern. While those around you are talking about the price you might pay or should pay or will pay for a house you know that the important variable is what you pay in mortgage payments over the life of the loan.

CLOSING COSTS:
Focus on what comes out of your pocket at closing, so you are prepared with sufficient funds. There are costs that you will pay at the time of closing the loan. On the day that home becomes yours you will pay the down payment and you will pay other costs to close. When you apply for a loan ask for the lender to give you a written estimate of costs to close. Compare those between several lenders.

MONTHLY PAYMENT:
Focus on what comes out of your pocket after closing month after month after month as your monthly payment. Focus on rate and terms. That focus leads to big savings. Let’s say that you buy that house for $350,000, you put 20% of the purchase price as down payment and get a loan for 80% of the purchase price. That loan is $280,000. Now, if you want to negotiate for BIG savings here is where you begin. You can save in two ways.

INTEREST RATE:
The first is the actual interest rate. It is easy to see that a 4% interest rate is lower than a 6% interest rate. If you borrow $100,000 at 6% over 30 years the monthly payment is $599.55 but 4% over the same period of time is $477.42 per month. That is a big savings, It is more than $120 per month for 30 years. How much is that? All those monthly savings add up to $43,200 over 30 years. Buyers know that a lower interest rate yields a lower month payment. They know to shop around for that lower rate. Interest rates are very visible. After all, you can go online and shop interest rates before ever talking to a lender. You will probably discover that there isn’t much variability in rates between lenders. Find the lowest rate and begin with that lender. Rate should be considered and finding the best rate is certainly worth the effort of shopping around.

THE LOAN TERM:
The second way to save big is to get a loan term as short as you can. The loan term is the actual number of years over which your loan payments are spread. This could be anywhere from 30 years down to 10 years. The longer the term the more interest you will pay over the loan. So, when you talk to lenders be sure to find out what your monthly payment will be for various terms. Do you need a 30-year loan term to be able to afford the monthly payments or could you afford the monthly payments that will let you pay off the house in 15 years.

PICK A SHORTER TERM:
Picking the shortest term that you can afford will yield the biggest savings over the life of the loan. Here is how it works. On a loan of $280,000 over 30 years you are paying about $1,336.76 per month. During those 30 years you have paid more than $480,000 in mortgage payments. Add that to the $70,000 of down payment that you paid at the time of purchase and you will have paid more than $550,000 for that home over 30 years. You can save big by shortening the term. Compare that 30-year term to a 15-year term. The loan amount is still $280,000 but you will no longer be committing to pay more than $480,000 in mortgage payments. Instead, you will avoid paying more than $100,000 in payments. Here is how that happens. On the 30-year loan you are paying $1,336.76 per month but on the 15-year loan you are paying $2,071.13 per month. While you are paying more each month your loan is paid at the end of the 15-year term. At the time you got your loan you asked for a 15-year loan instead of a 30-year loan. That saves you more than $100,000 in payments. Here is another way to save. Frequently, lenders will offer a lower rate of interest on the 15-year loan. You can save even more if the lender offers a lower interest rate on a 15-year loan. Maybe the lender charges 4% on a 30- year loan but 3% on a 15-year loan. You would not only be saving because the loan term is shorter but also because the lender is charging less on the interest. Ask the lender if the interest rate is less because you have selected a shorter term. The bonanza of cash savings grows when the term is short, and the interest rate is lower. Mortgage insiders know this and now you do, too.

LOTS OF EXTRA CASH FOR YOU:
When you think about saving big on the cost of your new home think about the interest rate and think about the term of the loan. A shorter term will result in you paying less interest. What can you do with that money? Save it for retirement? Put it in a college fund for your kids? You can surely figure out how to put it to work for your future. Yes, purchase price is important. However, you are not likely to be able to adjust the price enough that it would be equal to what you can save by making sure term and interest rate work for you. Being careful about what you pay in mortgage payments is the big way to save. The interest rate and the term of your loan can really change the amount of money you unwittingly pay for your new home. Find the home of your dreams and then select the rate and terms that will really save you money. Price isn’t everything.