Doing Your Homework - picture of young couple laying on floor of new home

Doing Your Homework: How to Save Money Buying a House

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The following is a guest post from Brandon Turner at BiggerPockets.com. If you are interested in submitting a guest post to Club Thrifty, please see our guest posting guidelines.

I hated doing homework in school. I would quickly rush to get my work done in class, no matter the quality, just so I wouldn’t have to take it home. There was just something “wrong” to me about doing work at home when I could be hanging out with friends or watching the latest episode of Boy Meets World instead.

However, as I’ve grown up and begun buying homes (both for person living and investments) – there is one piece of homework I’ve grown to love because it saves me money: the “pre-house buying homework.”

This homework is vitally important because houses are expensive (shocking, right?) It doesn’t matter if you live in Silicon Valley (average price in the millions) or the backwoods of my town (average price around $50,000) – no matter where you live, very few people can simply pull out their checkbook and simply buy a home. The monthly payment on the mortgage, combined with hefty charges for taxes and insurance, can quickly make your house payment the most expensive bill in your budget. However, there are ways to lower the cost of your home and save money – without sacrificing on your dreams. Just as the secret to getting good grades in high school was being diligent to do your homework, the secret to saving money when buying a house is to also do your homework. This article will show you how do your “pre house buying homework” and help you save money and get the best deal on your dream home.

Don’t (Just) Listen to the Bank

Math is not everyone’s favorite subject in school – but when shopping for a home, it’s the first step in saving money. The reason doing your math homework is so important is because often times – your bank’s math may be different from your own. A banker’s job is to make money for the bank. While this statement may seem obvious, it’s also easily forgotten when getting pre-approved for a loan. A banker will tell you (and encourage you to shop for) the maximum amount you can pay – but they won’t tell you how much you should pay. In reality – these amounts may be very, very different and most home buyers’ budget simply will fall into line with whatever the banker says they can afford.

Instead, before buying a home it’s time to first pull out the old pencil and paper and do your math homework. Determine ahead of time how much you are willing to spend on a monthly payment, taking into account the term-length for the mortgage you’ll be getting. Then, simply don’t spend more than this, even if you qualify for much more. There are hundreds of mortgage calculators online (such as this one) that can help you determine how much you will pay for a particularly priced home, so do your math ahead of time to determine how much you can afford – then don’t allow your emotions to let you overspend.

Research the Right House

In addition to only looking at homes within your price range, it’s also important that you choose the right house. At any given time there are probably thousands of homes for sale in your area – and it can be easy to fall in love with the first home you look at. However, the first home you look at may not be the best for your pocketbook.

There are numerous factors, more than just the sales price, in a home that can add or subtract to your monthly payment – and it’s important that you consider these as well and include them in your analysis. These extra items might include:

  • Taxes
  • Insurance
  • City Assessments
  • Home Owner Association Fees/Dues
  • Heating/Cooling Costs
  • Water/Sewer/Garbage costs
  • and more

These costs can vary significantly between different properties – so be sure to do your homework and determine how much you’ll really be paying each month to live in a home.

Inspect Thoroughly

Finally – one of the most significant costs to home ownership can be the maintenance costs that occur after your purchase. When you are renting, your landlord will simply fix and problems that you run across, but when you own the property, these problems are yours to fix and pay for. This is why it is fundamentally important to do your homework and have a thorough inspection done prior to your home purchase by a licensed home inspector. Yes, your brother-in-law might be a contractor or your dad may know his way around the garage – but professional inspectors have the training to discover problems that will go undetected by even the best contractor.

By paying the $400-$600 ahead of time from a professional inspector, you are able to determine if there are any problems that will cost you more money later once you own the home. By determining these problems ahead of time, you can often negotiate with the seller to have them fixed prior to closing, saving you money after the home is you own.

No Cheating

If you are looking to buy a home and want to save as much money as possible, you can’t avoid your homework or get someone else to do it for you. Home buying can be an expensive The good news, however, is that you now have the tools you need to go out and save money when buying your next house. Doing your homework now can save you tens-of-thousands of dollars later, so don’t skimp or cheat on your responsibility. Class is dismissed – you have your assignment – it’s now up to you to get it done.

Brandon Turner is the Senior Editor and Community Manager for BiggerPockets.com, the premier online real estate investing community. He spends his time discussing topics on both the blog and the real estate forums on topics related to real estate investing, wealth building, and tenant screening.

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71 Comments

  1. Sometimes the best answer to the home buying question is not to buy. In my situation, I live by myself and I live in a very expensive area. I looked into homes around here, but every time I ran the numbers it looked like buying a house would double my current housing costs. For fun, I also looked into buying rental properties, but my envelope math suggests that most of the houses here would be hard to cash flow. So I decided that I would stay put in my apartment and focus my investment dollars in the stock market. Of course if my life situation changes in the future, I’ll reassess.

    1. Hey, that makes perfect sense to me! Maybe you can buy later when your situation changes???

    2. I agree! With the prices SO high in some areas – it just doesn’t make financial sense in some areas. That goes for both rentals and for your primary residence. Like Holly said, maybe that will change sometime! If not – there are some “turn key” rental companies that let you buy out-of-the-area, so that’s an avenue you can always think about as well!

      Thanks for the comment!

    3. Excellent point! In my early years I did nothing but rent for a long time in cities. And it was the best decision for a lot of reasons!!

  2. Great point about the bankers – they have an incentive to push product. Same with realtors. You have to really check what people’s incentives are when they give you “advice” when you are looking to buy a home.

    1. I always think that. Realtors only get paid if you buy or sell….so I take anything they say with a grain of salt.

    2. Thanks DC – It’s so true! I love how both bankers and agents love to talk about “how much you can spend” rather than “what’s the right amount you need.” I guess that’s what we get in a commission driven industry. But yeah, definitely look at the motivation behind advice!

  3. Great tip on the inspector…spending that money is huge in terms of getting someone to take an unbiased look at the house to tell you what might need taken care of. Thankfully we had a very good banker who steered us (not that we wouldn’t have done this) towards buying something that would fit within our then current budget.

    1. Hey John – thanks for reading and commenting! That’s great you found a good banker, cause they can be hard to find. Hang on to that one! (I use to be a Banker, but left because of the incredible pressure to sell-sell-sell people on credit cards and loans!)

  4. When we were looking for our home back in 2007, we found a lot of homes that we liked but that we knew we’d be settling for. We ended up finding our home which had everything we were looking for (save for a two story family room, but that was something we could live without), and I wonder what would have happened had we not found/gotten our house. Would we have been unhappy there knowing we were giving up things that were pretty close to must haves? Luckily we don’t have to find out 🙂

    1. I’m glad you found the house you wanted! I really think we’ll downsize in the next 5 years! And I want a jacuzzi tub or hot tub!

    2. Congrats on timing the market and getting your dream home! I think way too many people rush into that decision and are unhappy for the next 20 years with their purchase!

  5. We recently decided not to buy a house right now. We already own one and decided that we would rather save and buy next year 🙂

    1. Hey, nothing wrong with waiting for the right time!!!

  6. This is very timely for me, as I sold my condo six months ago and am house-hunting now (renting while I look).

    1. Ohhhh…..good for you. I hope that you find something you love!

  7. Many of the houses we looked at were going to require extensive maintenance and so that is why we decided to buy brand new. We figured that would give us 10 years maintenance free. So far the plan is going pretty well 🙂

    1. Not a bad idea, Glen! I grew up in several new homes that my parents built, and it was really nice for them not to have the repairs to do. I, personally, love old houses but I always completely remodel them to bring them up to normal standards – but I still have a lot of maintenance to deal with! Thanks for the comment!

  8. When I bought my first property I didn’t do most of that, and it was hard to sell afterwards… what cost me most was not checking out the neighborhood at different times of day, it got really rough at night, so realtors only did early morning showings!

    1. Ugh…that stinks. Oh well. Hindsight is 20/20!

    2. Hey Pauline – that’s excellent advice. You are right – the time of day really matters!

    3. Mr. Bonner says:

      That reminds me of one of our newer neighbors. We’ve become friends since we have kids the same age. They said they stopped by our neighborhood probably a dozen times before they bought. They came at different times of the day and they would go for walks around the block.

  9. I definitely calculated our Max price without the help of the bank. We probably could have qualified for twice as much but we wanted to keep our home affordable and didn’t need a mcmansion. Our payments will make us very glad we stuck with our budget rather than what the bank could have preapproved us for.

    1. We qualified for more than 3 times what we borrowed! I think that’s insane! I wouldn’t feel comfortable borrowing that much money.

    2. Hey Lance, Good to see you again! (We ran into each other often while I was running RealEstateInYourTwenties!)

      Very smart sir!

  10. It`s still a couple of years until we`ll be able to buy a house, but I´m such a nerd when it comes to this, so I love planning, and calculating how much different ranged houses would cost, how big a downpayment we`ll need if we want a particular house. I`m definitely not going to trust the bankers blindly!

    1. I also love the nerdy side of finance stuff like this! I think it makes for much smarter purchases!

  11. Ultimately, I think almost all purchases should follow research, but the masses fail to share my views.
    My wife and I will be making a home purchase at some point over the next few years. Thanks for the tips!

    1. Have fun house hunting! It is my favorite thing EVER!

    2. Thanks Jacob! I agree a 100%! I tend to agonize over even small purchases. I’ve needed a new TV for years, but I’m still on the research phase! 🙂

    1. Definitely! I like to say that 95% of investment property out there is not worth buying, yet people still do all the time. It’s nuts, but people spend more time picking out curtains than they do picking out the right investment property!

      Thanks for the comment!

  12. There are some really good tips in this post! I LOVE the one about spend what YOU want to afford, not what the bank tells you you can afford. That has to be the most important one.

    A very close second is the Research the Right House tip. I purchased my first condo many years ago. I knew I could afford the payment and the monthly assessment, which covered the common areas and heat. What I didn’t budget for was a special assessment. I lived in the condo for 4 years, and there was a special assessment every single year. First, the boiler exploded and needed to be replaced. Then the pool needed to be resurfaced, then I can’t remember what else (it was a very long time ago) but I do remember that every year I lived there, I paid a special assessment on top of my regular assessment, which in essence, doubled the assessment. It was very very tight for a while, because I hadn’t done research into it. The next condo we bought, also had a massive special assessment right before we sold it. Since we were owners of record at the time of the assessment, we had to pay it before we could sell.

    Inspect is also a great tip. We lived in a humid area, and there was a fake stucco product on the market for a while. When improperly installed (as was the case often) it could allow moisture to get behind it and grow mold. We had an inspection done on a property we wanted to purchase, and the inspector told us this product was present, and all the problems it had in the past. He wasn’t sure if it was installed correctly or not, but we were all too happy to pay his relatively small fee to be able to back out of the property and get our deposit returned.

    One more tip would be to interview agents before settling on one. They only get paid when you buy or sell, and some of them will say anything to get you to sign with them. Be careful what you sign, too. Some buyer’s agent contracts state that the agent will receive a commission from ANY house you buy within a certain time frame, even if they don’t show you the house. That ultimately means it is coming out of YOUR pocket, if the seller has already paid a commission to the agent that did sell you the house. I am sure there are good real estate agents out there, but I have rarely come into contact with them…

    1. Thanks for the great comment! And your tip is right on – interview agents. I think the 80/20 rule especially applies with agents – that 20% of them do 80% of the deals, for a reason! You gotta find someone who is good, honest, dependable, and can actually do the deal. So many people just work with their brother’s vet’s sister’s childhood friend!

  13. Very good tips. When we bought out condo we did a thorough home inspection with a professional. He was great and gave us a lot of tips about things that we wouldn’t have even thought about (how big of an a/c we needed for the unit, how to clean the decorative fireplace, etc.). It was a little pricy, but knowing that nothing was wrong with our place gave us the peace of mind we needed to purchase without any regrets. I never would buy without a home inspection.

  14. Well put together Brandon. I get irritated when people purchase a home up to their pre-approved limit. It means they are instantly house poor. The reality shows do a great job with this, especially House Hunters. This gives people a false sense of what they can actually afford. When we purchased our first home, we were pre-approved for $400k, but we only purchased a home worth $175k. There is a huge difference in our mortgage payment compared to what it could have been.

    1. That’s a great example Grayson! Those shows always are like that, huh?! “You are approved for $500,000!” and all of a sudden, their price range is around there! Crazy, I think. Thanks for the comment!

  15. These are some great tips! When I got my place I received similar good advice on the house inspector. I got a good one and was able to reduce the price by 10k.

    1. Hey John,

      That’s one of the best benefits of an inspector – they can usually help you negotiate a better price! And if you can drop the price of the house $1000 to cover something, that inspector more-than-paid for themselves!

  16. A lot of people can save themselves heartbreak if they just listened to this piece of advice – “A banker will tell you (and encourage you to shop for) the maximum amount you can pay – but they won’t tell you how much you should pay. In reality – these amounts may be very, very different and most home buyers’ budget simply will fall into line with whatever the banker says they can afford.” Too many people only have a general idea of what they can afford, so when the banker tells them they can afford a lot more – they are giddy with excitement. Now they can buy their dream house! The reality is your budget probably cannot afford the maximum amount the bank is willing to loan you and the banker doesn’t have to pay the mortgage – you do. As Brandon said – do the math first. Great tips!

    1. Thanks Shannon! When I first started out, the bank approved me for like $200,000 and I was barely making minimum wage. It was crazy. Luckily, I had been given this same good advice and bought one for around $85,000 that was much more manageable!

      Thanks for the comment!

  17. This is a lesson that I’ve had to learn the hard way, but learn it I did. And just in time for refinancing and reassessing

  18. Living Debt Free Rocks! says:

    Very good post. People, especially first time homebuyers really need to sit down and list what they need and want in their ideal home before househunting and be patient while going through the homebuying process. Shop around for your mortgage and reach out to people who may have bank contacts that can potentially get you a better rate than what’s posted. It worked for me when I purchased my condo years ago.

  19. Great post! I completely agree with you on not going by the amount you a preapproved for. Normally this amount is waaaaaay higher than you should actually buy. I also think that emotions have to be kept in control when buying a house. So many people fall in love with a house and will get it no matter what they find in the inspection or wha thte final price is.

  20. I probably never loved homework, but with real estate, I actually love to find out all the associated things that go along with a property. I think it would be fun to study to be a realtor, not because I want to do that job, but just to understand the ins and outs a bit better. Since real estate is a huge part of our plan for financial independence, I am always very excited to see posts on this topic.

  21. Mr. Bonner says:

    I’m happy that we stayed well within what we COULD afford 6 years ago when we bought, but unfortunately all that wiggle room in our mortgage has only meant that our extra principal payments have chased the value of our house as the market crashed. At least we’re not underwater and hopefully when we’re ready to buy our next house in a few years we can hold on to this and rent it out. I’m still not sure if it we can get it to a point to be cash flow positive.

  22. Getting an inspection saved us several thousand dollars because we were able to bargain down the seller after finding some moisture in the bathroom walls that would one day need to be addressed.

  23. When you are buying, for most of us the biggest purchase in your life. Reach is ALWAYS recommended. One rule for all purchase’s BUYER BEWARE! There are grade A doctors,lawyers,realtors. There are also grade D- doctors,lawyers, realtors. You the buyer,patient,client must be do your home work. Simply to trust a professional is just WRONG. When something goes wrong,people want someone to blame. I certainly did nothing wrong,it was my professional.
    Interest rates are at staggering low interest and home prices are low. Rents will go up. Locked in rates are locked in. How could renting be in your favor now? Your rent is going up and your friend’s mortgage is staying the same. Even with SLOW growth your friend’s home is appreciating and your rent is ???

  24. Judy Murray says:

    As a residential insulation company owner, I can say for a fact that most home inspectors do not look into attics or at basements. I agree that you should hire your own home inspector. It is worth the investment because they will be working for you and not the current homeowner or bank. I also appreciated the fact that you advised that people work out their own budgets. Costs do rise. Our homeowners insurance was $800 a month and now it is $2200. Always buy a home under budget. You will be glad you did.

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