Buying a house is a symbol of the American Dream, but it can also easily become the American Nightmare if you’re not financially prepared.
My husband and I bought our first home in May and we took all the steps needed to make this an enjoyable experience. We also didn’t want to go broke in the process. It was our goal to buy a house with a mortgage payment we can afford. More importantly, we still wanted to enjoy our lives, travel, and continue to save money.
Here are a few ways we saved big as first-time home buyers. Better yet, we’re not house poor.
We Got a Fixed-Rate Conventional Loan
There are many different types of mortgages. We went for a conventional loan with a fixed interest rate.
Why? As mortgage interest rates are now low, we wanted to lock in the best rate possible to ensure that we have fixed payments every month.
Another reason why we chose a conventional loan was because we wanted to make a sizeable down payment and knew we would not have to pay private mortgage insurance (PMI) if we could pony up 20% of the cost of the house. A general rule of thumb is to put at least 20% down to avoid paying PMI. But, if you can’t do this, a conventional loan allows you to get rid of your PMI payment once you have 20% equity in your home – even if you couldn’t initially afford a hefty down payment.
We Improved Our Credit
My husband and I started working on improving our credit two years before we applied for a mortgage. We paid off debt, used credit cards wisely, and corrected any errors on our credit reports.
We focused on developing better spending habits and paying bills on time. By the time we got pre-approved and started looking for houses, both of our credit scores were over 750.
Because lenders look at credit scores for co-borrowers, they will often take the lowest score into account. Yet, neither of us wanted to be the weakest link. Plus, since both of us had such strong credit scores, we secured the best interest rate for our mortgage. This will save us thousands of dollars over time.
Our House Was Move-in Ready
Buying a move-in ready house was super important to me. My husband and I are not handy and we wanted something we would not have to completely renovate.
Our home was the perfect compromise. It was listed at a price that was at least $15,000 less than other homes in the area, was moderately maintained and had some good bones. The kitchen was updated along with one of the bathrooms. The roof was new, the HVAC system was in good shape and there was even a new deck in the backyard. Another bonus: a sprinkler system was recently installed. We definitely didn’t need to invest anywhere near $15,000 into the house. The only thing I really wanted to do immediately was hire a cleaning service and replace all the carpeting with laminate flooring. No big deal.
The best part: we didn’t have to spend extra money on hotels or stay with family while having major work done to the house.
We Bought Almost Everything Used
To save a ton of money when buying our house, we purchased used furniture. We also budgeted to buy stuff for the new house – using only the cash we had available in our bank account.
I found most of what I needed on the Facebook Marketplace. Among my bargain buys: a glass table with six chairs, a sectional sofa, an indoor storage bench, a patio table, and a wicker loveseat for the patio. Total cost: under $1,000. Can’t beat that price.
Our Sellers Purchased a Warranty
The sellers of our new house were kind enough to purchase a 13-month warranty that we can use if certain things in the home need repair. Because our house was built in the 60s, something is bound to need fixing.
Among other things, the warranty covers electrical work, plumbing and HVAC repairs. All we need to do is pay a service fee for a contractor to come out to either fix the issue or replace the item.
We’re DIYing like Crazy
Finally, we DIYed a lot to save money. As first time home buyers, we enjoy working on projects together and learning new skills. For example, I installed a backsplash and my husband sanded drywall in our second bathroom.
We’re even getting the family involved. My dad installed our flooring and window treatments, saving us the cost of hiring contractors to do this.
Buying a home is a huge financial commitment. But, if you plan ahead you don’t have to go completely broke in order to achieve the American Dream. By taking a page from my book, you too can take steps to save money, pay down debt and become a homeowner.