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Save THOUSANDS on your first home! Buying your first home can be a very overwhelming experience. There’s just so much that goes into it. Also, let’s not forget how darn expensive it can be! Before you buy your first home, there’s things you need to know to save thousands! I’ll be sharing a few home buying tips that can save you a lot of headache and money.
Mortgage Loans
People usually don’t have hundreds of thousands of dollars laying around to buy a home. So, most of us will turn to mortgage loans. The two main types of mortgage loans is a conventional loan and an FHA loan. It’s super important to get familiar with how these work so you won’t unnecessarily be blowing hundreds of dollars each month.
Conventional Loan
A conventional loan isn’t backed by a government entity like the FHA or VA. This is good news for you if you put down at least 20% of the loan. That way, you won’t have to pay for something called PMI. PMI is a Private Mortgage Insurance which protects the lender in case the borrower defaults on payments. The worst part about it is that you will be responsible to pay the premiums, how ridiculous is that? This will tack on more money each month to your mortgage bill. Avoid at all costs!
Qualify For a Conventional Loan:
- Need a credit score of at least 620
- Put a down payment anywhere from 3%-20%
- No PMI cost if you put more than 20% down
- Get get rid of PMI once you put at least 20% equity into the home
- Slightly higher interest rate compared to an FHA loan
FHA Loan
An FHA loan is backed by the government which means that it has to be insured in case the loan gets defaulted. So remember when we mentioned PMI? In FHA’s case, you could be paying a MIP (Mortgage Insurance Premium) for the ENTIRE life of the loan! This is something very important to keep in mind.
Qualify for an FHA Loan:
- Need a credit score of at least 500
- Put a down payment from as little as 3.5%
- Need to pay an upfront mortgage fee of 1.75% of the loan amount, due at closing
- Need to pay the MIP for the entire life of the loan unless you put more than 10% down, then you’ll only need to pay for 11 years
- Interest rates are slightly lower compared to conventional loans
Mortgage Insurance Rates
| Conventional Loans | FHA Loans | |
| Initial Mortgage Fee Due at Closing | N/A | 1.75% |
| Rate | 0.19 – 1.86 % | 0.45 – 1.05 % |
Conventional Loan Vs. FHA Loan
Both types of mortgage loans has it’s pros and cons. You have the conventional loan which generally may have a slightly increased interest rate compared to an FHA loan. The PMI can also be removed after 20% of equity has been built up for a conventional loan, which is great.
On the other hand, an FHA loan may be easier to qualify for but you get the dreaded mortgage insurance.
Overall, before making a decision on a loan it’s important to consider all the fees involved over the course of your mortgage. Discuss all the facts with your realtor and they should be able to help you out.
Key Things to Keep in Mind:
- Interest rates for both a conventional and FHA loan
- Initial mortgage fee of 1.75% due at closing for an FHA loan
- Rate of mortgage insurance premium for both conventional and FHA loans
- You always have the option of switching from an FHA loan to a conventional loan to get rid of MIP once you reach 20% of equity in the home
- Use a mortgage calculator to compare both types of loans
Property Tax
When purchasing your first home, property tax is something you should definitely consider. It’s something that you’ll have to pay for as long as you own that home.
A property tax can consist of school tax, county tax, and utility district tax.
Please consider getting an idea of how much your property taxes would cost for the home that you’re looking to buy. Your realtor can get you that information or simply look it up on TaxRates.org.
Property taxes can really tack on thousands of dollars for you as a home owner. You definitely don’t want to be surprised when you’re hit with the huge tax bill every year.
HOA – Homeowners Association
Another financial aspect to keep in mind when purchasing your home is an HOA fee.
An HOA fee is also known as a home owner association fee. It’s a fee collected by property owners, it can be applied for condominiums or residential properties, which helps to maintain and improve properties in that association.
The HOA fee for condominiums can cover costs like the maintenance of a building’s common areas, which may include lobbies, patios, landscaping, pools, and elevators, and common utilities.
For residential subdivisions, the HOA fee can cover costs of certain amenities like the community clubhouse, pool, parks, tennis courts, and landscaping.
It’s important to keep this in mind since HOA fees can really range anywhere from $100 to $700 per month.
If you’re set on a specific condo or home, ask your realtor if there’s an HOA fee for that property and how much it’s going to cost you.
Proper Inspection
So you’ve found your dream home, and now it’s time to get it inspected.
You’ll hire an inspector and they’ll check the home from top to bottom and give you a report of their findings prior to purchasing a home. They’ll check the home’s HVAC system, check for any water damage, plumbing, electrical, roof, attic, floors, windows, doors, foundation, basement, pest infestation, and structural damage.
What you can also do is walk through the home with the inspector and they can point new findings out to you right then and there.
Hire Your Own Technicians For Follow-Up
When the inspector finishes the report, you may have a hand full of things that need to be repaired prior to buying the home. You can then submit your list to the seller and negotiate the repairs. The seller will often be responsible for repairs related to roofs, electrical, plumbing, or an HVAC systetm.
If the inspector notices a problem with any of the above, try to see if you, as the buyer, can hire your own professional to assess the situation further and find out how much a repair would be.
For instance, if the inspector finds issues with the home’s HVAC or plumbing, hire your own technicians to take a closer look into the issue to find out what extent of damage it has caused and what it costs to repair. That way, it’ll give you an unbiased overview of what needs to be taken care of.
I’ll tell you a little bit about what happened to us.
When we first found our home, we hired an inspector to check the home we wanted to buy. Overall, there was no major damages to the home but he reported the home’s A/C was not functioning to it’s fullest potential. With that information, we relayed it to the seller. The seller had their A/C technician do a routine check on the system and said it was good to go.
Not even a month after moving in, the home’s A/C went out. It turned out that the A/C needed a few thousand dollars of repairs and this sure did not happen overnight.
Lesson learned, ALWAYS have a third party technician look further into issues before you agree to buy the home. If we did that, we could’ve had the seller either fix the problem or negotiate it within the terms of sale.
Also, if the seller said they “fixed” the issue, opt for a second home inspection to make sure it was done properly. You sure don’t want to end up in a situation like mine where we trusted the seller and were left with a few thousand dollar repair bill not even a month into the move.
Get Multiple Quotes For Home Repairs
You moved into your first home, hooray!
It’ll be awesome at first, to have a place to call your own.
But, what if things start to break on ya?
This is where you have to be careful because home repairs and maintenance are no joke. They can run you thousands of dollars.
So, remember when I mentioned how our newly moved in home’s A/C system broke not even a month into the move? Well, it was the middle of summer in Texas, and if you’ve ever been to Texas in the summer, it’s brutal.
We found a local HVAC professional to assess the system. Well, they quoted us a bill over $3,000!
So, were we going to fork over $3,000 just like that? Heck no!
We called around and received 2 additional quotes.
The last quote received was only around $180, the technician said the coolant was low and just filled in some more. Sure, there probably was a coolant leak somewhere which had to be addressed eventually, we just weren’t ready for it at the time.
Moral of this story is, ALWAYS get multiple quotes and make your best judgement call on how to proceed. Plus, you can eventually find that one honest technician that you can always rely on.
DIY Home Repair
Doing your own home repairs can really save you so much money.
Google and YouTube can be your go-to when it comes to DIY home repairs. You may also find parts to fix appliances on AppliancePartsPros, they’ll even have video tutorials on how to fix certain appliances.
Once you’re in a new home, you may experience issues like a leaking faucet, running toilet, broken appliance, cracked caulk/grout, broken door knob, walls that need to be painted, holes that need to be patched, and more.
Do your research online because chances are, other people needed help and they’ve come up with solutions on how to fix that specific problem. You’ll be able to find lots of video tutorials online or forums you can read.
My husband and I took up so many little projects around the home and saved ourselves probably thousands of dollars on repairs on the home and appliances.
So, before calling the repairman, always check to see if fixing it yourself is possible, it can save you a ton of money.
If you want to find out more ways to save money, check out 95 Best Money Saving Tips.
Takeaway
Getting your first home for you and your family can be an awesome yet overwhelming experience.
There’s definitely a lot to consider when it comes down to how much you could be potentially spending for your new home.
- Consider whether a conventional loan or a FHA loan works for you
- Calculate your property taxes
- Find out if you have to pay for an HOA fee
- Always follow up with home inspections, don’t always rely on the seller’s word
- Get multiple quotes for home repairs
- Try the DIY approach when it comes to simple home repairs
I hope all these home buying tips I’ve learned along the way will help you with your first home purchase!
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