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:
- 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.
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.
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.