Buying a home is a big investment, you know this. There are a lot of different options out there to choose from and they can all affect what you pay for the home short term and long term. In the blog below, we’ll some money moves that you can use to make sure your dollar goes a long way.
But before we start throwing out dollar amounts and percentages, let’s get a couple disclaimers out of the way.
Rates are illustrative and are subject to change without notice: Mortgage rates can fluctuate based on various factors, such as changes in the market or economic conditions.
Rates are based on certain assumptions: Mortgage rates may be based on specific criteria, such as the borrower's credit score, loan amount, and down payment.
Rates may vary based on individual circumstances: Each borrower's situation is unique and may impact the rate they receive. For example, a borrower with a lower credit score may receive a higher rate than someone with a higher credit score.
Additional fees may apply: In addition to the interest rate, there may be other fees associated with obtaining a mortgage, such as closing costs or origination fees.
The quoted rate is not a guaranteed rate: The quoted rate is an estimate based on current market conditions and individual circumstances. The final rate may be different based on changes in the market or borrower's circumstances.
The quoted rate is not an offer of credit: The quoted rate is not a commitment to lend, and the lender may require additional information or documentation before approving the loan.
Alright, let’s get into it.
Reduce Price, Buy Out the PMI, or Pay Points?
What’s the best way to lower the payment on your new home if the seller is paying some of the closing costs? There are 3 options, so let’s put them to the test.
Before we get started, let’s cover the logistics. Let’s base this on a $400,000 sales price that’s for a primary home and the buyer is putting 5% down and has a 760 credit score. And finally, please note the disclaimers above for additional context on the figures below.
Okay, now let’s look at our options.
Lower the Purchase Price: What if had the seller lower the price by $4500? The payment at 6.75%/8.828% would be $2504.
Buy Out the PMI: With conventional loans you can pay your PMI once vs. monthly. In this case the principal & interest payment would be $2,465 at a 6.75%/6.827% rate and the cost of the PMI one-time fee would be $4,522.
Pay Points for a Lower Rate: If you used that $4,500 instead to buy down the rate, could buy down to 6.375% / 6.511% and the principal & interest & PMI payment would be $2,377
So, what do you think? As you can see, the way you spend that lump payment can change the financial scope of your purchase significantly.
Conventional Loan or an FHA Loan?
Think you need a conventional loan to get the best deal on a mortgage? Think again.
If you’ve got good credit, an FHA loan could save you big bucks compared to a conventional loan. Now, let’s help you re-think what you thought you knew about FHA loans with an example. And before you read any further, reference those disclaimers at the top of the page once again.
For this example, we’re using a sales price of $400,000, a down payment of 3% for conventional and 3.5% for FHA and a 680 score. Here’s how the payments would compare:
Principal & Interest: $2,585
Loan Payment: $2,759/month
Principal & Interest: $2,261
Loan Payment: $2,437/month
You can see that for just an extra $2000 in down payment using an FHA loan can give you a significantly lower rate and save you hundreds of dollars a month. Home Improvement Options to Maximize Value
You might’ve watched one of the popular home flipping shows on HGTV and become inspired to maximize your home’s value by making some updates or renovations. But which renovations give you the most bang for your buck?
Here are the top 3 and the average cost of each:
3. Improve Curb Appeal $750-$50,000+
Sprucing up the exterior of your home, adding an outdoor living area, or even updating landscaping goes a long way to a great first impression for buyers. People are often willing to pay more for a home in great condition, and that curb appeal might attract more offers from the jump.
2. Bathroom Remodel: $2,500-$20,000+
The cost of a minor bathroom remodel can vary depending on the size of the bathroom, the materials used, and the extent of the work needed such as new flooring, cabinets and the tub and shower. However, just a few updates to give it a fresh, clean look can make a big difference when trying to attract prospective buyers.
1. Kitchen Remodel: $10,000-$50,000
A kitchen remodel can be a major selling point for homebuyers, and it often provides a high return on investment. Updating appliances, countertops, and cabinetry can give your kitchen a fresh, modern look that can significantly increase your home's value.
Again, these are just rough estimates, and the actual cost of each project will depend on a variety of factors. It's important to do your research and get multiple quotes from reputable contractors to ensure that you're getting a fair price for the work.
We say it all the time, but it’s true — buying a home is a massive financial investment. If you want to stretch your dollar as far as possible, you’ll first want to have an experienced and trustworthy lender by your side. If you have any questions about what would work for your unique situation, let’s connect!