Shopportunist: Houses are costly, but there are ways for aspiring and present homeowners to save.
Ahome not only offers shelter, but also a sense of place, security and belonging, so staking claim on a little slice of the universe is understandably important to many, maybe now more than ever.
Purchasing and owning a home isn’t for the fiscally faint of heart, however. The biggest chunk of the average American’s budget - 37% of post-tax pay - is dumped into a domicile, according to the Bureau of Labor Statistics.
Potential and present homeowners looking to save money on a sanctuary at the outset or along the way have a lot of options, though.
Purchasing a home without forking over a fortune - even in the midst of a pandemic - is possible. For starters, mortgage interest rates are at historic lows, hovering at or below 3%, which will save any homeowner heaps of money over the life of the loan.
There are also several low-down-payment mortgage programs homeowners can use to keep more money in their pocket, says Matt Frankel, certified financial planner and mortgage analyst at The Ascent, a subsidiary of The
Motley Fool.
“For example, as of now, the Fannie Mae Homeready mortgage only requires 3% down, which can come from a gift or grant. And you can always ask the seller to pay for closing costs, which can really help minimize your out-of-pocket costs,” says Frankel.
The federal Department of Housing and Urban Development offers several options to would-be buyers. The “Dollar Homes” program lets low- to moderate income families buy Hud-owned homes for just a dollar.
“Now, these homes will need considerable work, but if you’re able to afford (or finance) the rehab work, this can be a great way to get a fantastic deal on a home of your own,” says Frankel.
Your job could help you qualify for cash-saving programs as well.
“If you’re a teacher, EMT, firefighter, or police officer, the Department of Housing and Urban Development (HUD) has a program called Good Neighbor Next Door that can get you a 50% discount on a home (that’s not a typo) in a designated ‘revitalization’ area if you commit to live in the home for at least three years,” says Frankel.
There are also several local, state and federal homeowner assistance programs that can help provide funds for a down payment, provide homeowner education, and can help homeowners obtain financing, says Frankel.
The city of Albany offers the Home Acquisition Program (HAP), which provides financial assistance to low -ncome households. The Troy Rehabilitation and Improvement Program’s Homeownership Center administers funds for the city of Troy’s Homebuyer Incentive Program and Rensselaer County’s Homebuyer Program in the form of down payment and/or closing cost assistance. The town of Colonie’s First Time Homebuyer program provides a subsidy to participants to purchase homes in the town or the village of Colonie or the village of Menands.
Funds for this program - up to $14,000 - are provided by the U.S. Department of Housing and Urban Development (HUD) and designed for qualified households with incomes below 80% of the area median income who are capable of qualifying for and repaying a mortgage.
If you’re already rooted in your refuge but looking for ways to save more money, there are opportunities to keep more cash in your pocket.
You could refinance your mortgage. It’s all the rage these days as requests for refinances making up 64% of total mortgage applications the first full week of July, according to the Mortgage Banker’s Association.
Refinancing is a wise choice if interest rates are at least 1 percentage point lower than the rate you’re already paying at the moment. A 1-percentage point reduction could save you thousands of dollars in the long run, reduce your monthly mortgage payment and possibly your repayment term.
If you have significant equity in your home, you can tap into that equity by refinancing your loan and borrowing money to pay for home improvements or big-ticket items. A cash-out refinance replaces your current mortgage with a larger one, but in exchange you’ll receive cash to use as you see fit.
In order to qualify to refinance your mortgage, your personal credit and income qualifications must be sufficient and your home’s value and the amount you want to borrow must make good financial sense to the lender. In most (but not all) cases, lenders want to see that the new loan will produce a maximum loan-to-value, or LTV, ratio of 80%, says Frankel.
Refinancing a mortgage is not free. Refinancing loans typically involve closing expenses, such as underwriting and origination fees, just as there would be with a purchase mortgage. Be sure that you’re going to live in the home long enough for the cost savings to justify any upfront fees, says Frankel.
If you have a low interest rate, don’t need a cash infusion and can comfortably handle your payments, refinancing might not make good financial sense.
There are a couple of other less risky ways to reduce your housing expenses, says Frankel. For starters, consider a simple energy audit.
“Think about improving the efficiency of your home,” Frankel says. “Smart thermostats are one way -- these aren’t too expensive, and can help save hundreds of dollars on your utility bills over time. Upgrading to a tankless water heater is another way, which can be a bit expensive but the long-term savings can add up.”
Also, revisit your homeowners insurance costs periodically.
“Shop around for insurance, especially if you’ve been in your home for several years,” he suggests. “Every few years, it can be a smart idea to obtain a couple of quotes from reputable insurers to make sure you aren’t paying too much -- you might be surprised how much you can find.”
“For example, as of now, the Fannie Mae Homeready mortgage only requires 3% down, which can come from a gift or grant. And you can always ask the seller to pay for closing costs, which can really help minimize your out-of-pocket costs.” — Matt Frankel