Buying a home is incredibly exciting, but it can also be intimidating. If you’ve never been a homeowner before, you may feel unprepared for the financial investment required to purchase a home. The last thing you want to do is buy a house and then realize you can’t afford to live there.
However, with the right strategies, homeownership can be affordable. If you’re a first-time homebuyer, there are several programs in place to support you. In addition, there are steps you can take to reduce costs both during and after you purchase your home. Read on to learn more about how to reduce the costs of becoming a homeowner.
Where Should You Live? Cost of Living Matters
In 2021, the average cost of a home in the United States was $374,900. However, property values vary depending on where you live in the States. For example, the average value of a home in Hawaii was $730,511 in 2021. At the other end of the spectrum, the average home in West Virginia was valued at $177,768 the same year.
If you’re willing and able to move, you might be able to save a significant amount of money and still get all the amenities you want in a home. For young professionals who work remotely, this can be an excellent option. Working an out-of-state job can enable you to save more and make homeownership more affordable.
However, it’s important to note that some houses are priced down because they’re in a bad neighborhood. There are many resources online that can help you learn about a city without visiting it. However, nothing can replace an in-person visit and talking with locals about their area.
State taxes also vary considerably across the country. The most common state taxes are income tax, property tax, and sales tax. However, some states like Florida and Texas don’t require income tax. Other states, including Montana and Oregon, don’t have sales tax. These tax savings can be put toward caring for your home.
Property taxes also vary by state and can make a big difference in the affordability of an area. For example, Tennessee has a property tax of 1.92%, but New Hampshire’s property tax sits at 5.57%. For would-be homeowners, living in a state with a smaller tax burden can make homeownership more achievable.
However, many people don’t want to have to move in order to find a more affordable home. After all, finances are only one part of homeownership. You also want to love your community and live in an area you enjoy. If moving isn’t an option for you, there are other ways you can cut costs on your home.
The Costs of the Homebuying Process
Once you decide to buy a home, you can start looking for places that fit your price range and preferences. A real estate agent is invaluable during this process – they can help you find a home quickly and negotiate the home’s final cost. Some people prefer to shop without an agent, but this can cost you later during negotiations.
Unless you’ve saved enough cash to pay for your home, you’ll need to borrow money from a lender. You should get preapproved with your lender before you start shopping for houses, as this will speed up the process and ensure you get the home you love.
Once you find a home you’re interested in buying, you’ll send the seller an official offer. To show the seller you’re serious about buying their home, you should include an earnest money deposit that’s about 3% of the home’s price as part of your offer. Many homebuyers also make their offer contingent on a successful home inspection.
At this point, the negotiation begins. Sometimes sellers will accept your initial offer, but often they’ll come back with a new offer of their own. During this time, you’ll have the home inspected and appraised by your lender. After you’ve both agreed on the terms of the sale, you’ll pay a down payment and closing costs to complete your purchase.
If you think this process sounds costly, you’re correct. However, there are several things you can do to reduce the cost of buying a home. For example, if this is your first home, you can take advantage of grants, loans, and tax breaks that are designed to support first-time homebuyers.
At the federal level, there are helpful tax breaks for first-time homebuyers. Government-backed loans like the FHA loan offer first-time homebuyers lower costs for their down payment and closing costs. In addition, some state governments and employers also offer financial support for first-time homebuyers.
For most homes, the minimum required down payment is 3% of the total purchase price. However, homeowners who put down less than 20% of a home’s purchase price will have to pay additional monthly costs for private mortgage insurance (PMI). If you can save 20% of the purchase price before you buy a home, you’ll save money over the long run.
Although it may be tempting, you should never skip a home inspection. Inspections ensure there aren’t any hidden problems with a home. Repairs can add up to thousands of dollars and some items have to be fixed immediately. For example, cracks in a home’s foundation can cost between $500 and $10,000 to repair, depending on the damage.
You may also be able to save on closing costs when you finally purchase your home. Closing costs are typically between 2% and 5% of the total purchase price. For a home that costs $200,000, closing costs could be as much as $10,000. However, you may be able to roll these costs over into your mortgage or ask the seller to pay part of the cost.
Reducing Ongoing Costs for Homeowners
Typical costs for homeowners include home insurance, mortgage payments, utilities, maintenance, furnishings, and property taxes. Many homeowners also pay movers to help them move in. Thankfully, there are many ways to reduce the cost of living in your home.
First up is home insurance. Although it may sound optional, home insurance is required by most lenders. It covers the basics to protect the investment the bank is making by lending you money for your home. Shop around for the best prices near you and only pay for what you reasonably need.
The way you set up your mortgage will determine how much money you pay the bank each month and how long it will take to pay back your home. Extending your mortgage period will mean smaller payments, but you’ll end up paying more over the long term. If you’re on a tight budget, you can start with a longer mortgage period and then refinance your loan later to quickly pay it off.
To save on moving, make several trips with furniture in your own vehicle. You can also ask friends and family to help you move free of cost. You can find furnishings for your new place at a lower cost in second-hand stores. Facebook Marketplace and Craigslist are other good places to check for deals in your area.
Utility costs cover electricity, water, natural gas, and sewage. To save on your monthly utility bill, shop around and be willing to adjust your lifestyle expectations. Turn your thermostat down overnight, turn lights off when you leave a room, and take shorter showers. If you’re really trying to save, you may also want to cancel some of those streaming services.
Homeowners are also responsible for maintenance tasks like fixing plumbing leaks, replacing old appliances, and caring for the yard. While some home maintenance tasks should be performed every year, others are unforeseen emergencies. To ensure you have enough to cover maintenance, you should start an emergency fund and do the work to complete basic projects yourself.
How to Plan to Save on Housing Costs
Homeownership is both a privilege and a joy. However, like most good things in life, it takes commitment and hard work to purchase and maintain a home.
Use this guide to understand the homebuying process and reduce costs along the way. With enough planning and dedication, you’ll be able to afford a home you love.