1. Consult a Pro to Find the Right Home
Opting to depend on the knowledge and skills of real estate experts can save you the time and effort required to find a suitable home independently. With their assistance, you can locate your dream home and have them negotiate the price on your behalf, ensuring that you receive the most favorable deal. This way, you can have the confidence that you're making the best decision.
2. Don’t Bite Off More Than You Can Chew
Being financially ready to take on the cost of homeownership is paramount. We recommend that you be able to answer all of these six questions with a “yes” before committing to a mortgage — otherwise, you should wait to purchase a home:
1. Am I free of debt with three to six months of living expenses saved?
2. Can I make a 10% to 20% down payment?
3. Will I be able to pay the closing costs and moving expenses with cash?
4. Is the house payment no more than 25% of my net salary?
5. Can I afford to choose a 15-year, fixed-rate mortgage?
6. Can I afford to pay the utility and maintenance costs as long as I own the home?
3. Maximize Your Down Payment
Although many individuals endorse the idea of purchasing a home with 100% cash upfront, not everyone has the luxury of waiting to accumulate the full amount required for a home purchase. In such situations, the crucial strategy is to make a down payment of at least 10% or as much as possible to decrease the sum that you'll need to finance.
By making a down payment of 20% or more, you can save a significant amount of money. If you choose a conventional loan and put down at least 20%, you can eliminate the need to pay for private mortgage insurance (PMI). Typically, PMI costs between 0.5% to 1% of your total mortgage loan amount annually, which is an additional expense that could be added to your mortgage payment instead.
4. Make an Extra House Payment Each Quarter
When you make additional payments towards your monthly mortgage, a larger portion of subsequent payments will be allocated towards the principal balance. Moreover, each extra payment made can help you in reaching the threshold for removing private mortgage insurance (PMI) sooner, if applicable. Once the principal balance of your mortgage reaches 80% of your home's original value, you can request the removal of PMI.
If you are unable to make an additional payment, consider rounding up your payments to ensure that you pay a few extra dollars each month. Additionally, you can increase your payment when you receive a raise or bonus. This slight increase in payment can help you avoid paying unnecessary interest charges.
5. Bring Your Lunch to Work
While it may not be the most glamorous choice, packing a brown-bag lunch for work every day can save you a substantial amount of money. By doing so, you can put aside $1,200 per year towards paying off your mortgage faster. In fact, using the same mortgage scenario as before, this approach can enable you to pay off your mortgage three years earlier and save over $28,000 in interest, according to various analysis.
Eliminating your daily coffee shop stop is another way to allocate more funds towards your mortgage payments. Even seemingly small expenses can accumulate over time, and redirecting the $90 per month you spend at Starbucks towards your mortgage can lead to significant savings. In fact, this can result in $25,000 in interest savings and a reduction of four years on your loan.
Opting to depend on the knowledge and skills of real estate experts can save you the time and effort required to find a suitable home independently. With their assistance, you can locate your dream home and have them negotiate the price on your behalf, ensuring that you receive the most favorable deal. This way, you can have the confidence that you're making the best decision.
2. Don’t Bite Off More Than You Can Chew
Being financially ready to take on the cost of homeownership is paramount. We recommend that you be able to answer all of these six questions with a “yes” before committing to a mortgage — otherwise, you should wait to purchase a home:
1. Am I free of debt with three to six months of living expenses saved?
2. Can I make a 10% to 20% down payment?
3. Will I be able to pay the closing costs and moving expenses with cash?
4. Is the house payment no more than 25% of my net salary?
5. Can I afford to choose a 15-year, fixed-rate mortgage?
6. Can I afford to pay the utility and maintenance costs as long as I own the home?
3. Maximize Your Down Payment
Although many individuals endorse the idea of purchasing a home with 100% cash upfront, not everyone has the luxury of waiting to accumulate the full amount required for a home purchase. In such situations, the crucial strategy is to make a down payment of at least 10% or as much as possible to decrease the sum that you'll need to finance.
By making a down payment of 20% or more, you can save a significant amount of money. If you choose a conventional loan and put down at least 20%, you can eliminate the need to pay for private mortgage insurance (PMI). Typically, PMI costs between 0.5% to 1% of your total mortgage loan amount annually, which is an additional expense that could be added to your mortgage payment instead.
4. Make an Extra House Payment Each Quarter
When you make additional payments towards your monthly mortgage, a larger portion of subsequent payments will be allocated towards the principal balance. Moreover, each extra payment made can help you in reaching the threshold for removing private mortgage insurance (PMI) sooner, if applicable. Once the principal balance of your mortgage reaches 80% of your home's original value, you can request the removal of PMI.
If you are unable to make an additional payment, consider rounding up your payments to ensure that you pay a few extra dollars each month. Additionally, you can increase your payment when you receive a raise or bonus. This slight increase in payment can help you avoid paying unnecessary interest charges.
5. Bring Your Lunch to Work
While it may not be the most glamorous choice, packing a brown-bag lunch for work every day can save you a substantial amount of money. By doing so, you can put aside $1,200 per year towards paying off your mortgage faster. In fact, using the same mortgage scenario as before, this approach can enable you to pay off your mortgage three years earlier and save over $28,000 in interest, according to various analysis.
Eliminating your daily coffee shop stop is another way to allocate more funds towards your mortgage payments. Even seemingly small expenses can accumulate over time, and redirecting the $90 per month you spend at Starbucks towards your mortgage can lead to significant savings. In fact, this can result in $25,000 in interest savings and a reduction of four years on your loan.
The typical home spent 67 days on the market in February 2023
