On the House: 10 Ways To Save Money on Buying a Home Today

How can first-time homebuyers save money when mortgage rates are at 20-year highs and home prices are rising again?

There’s no doubt that buying a home today is expensive. Mortgage rates are above 7%, home prices have begun climbing again, and bidding wars are back.

But for first-time buyers who are determined to become homeowners, there are a few ways to cut costs and lower mortgage payments. Some require a bit of creative thinking; others may take some perseverance.

Below are 10 tips to save money when purchasing a home in today’s crazily expensive market.

Paying off old debt might not seem like a way to save money, but hear me out. Lenders are less worried about borrowers defaulting on their loans if they have a proven track record of paying off their debt on time.

So borrowers with higher credit scores can usually snag lower mortgage rates and fewer fees on their loans.

This is where the savings can add up. Upfront fees on a loan can total thousands of dollars at closing—and higher mortgage rates have the potential to add tens of thousands of dollars over the life of a 30-year loan.

Plus, those with less debt can often qualify for larger loans.

2. Shop around for a mortgage

Make lenders compete for your business. Many buyers think they’re stuck with the lender that wrote them their loan pre-approval letter. Or they believe all lenders charge the same amount. That’s simply not true.

You can save tens of thousands of dollars over the life of your loan by making lenders compete over your business. With fewer borrowers seeking loans due to the higher mortgage rates, lenders may be more amenable to giving you a break.

And if you get a better offer from one lender but would prefer to use another, you can always see if your mortgage company of choice will match the better offer. This is how I snagged a lower mortgage rate, without buying points, and had fees waived when I bought a home two years ago.

3. Consider a FHA loan

Federal Housing Administration loans have long been popular with first-time buyers who can’t make large down payments. Borrowers can put down as little as 3.5% of the purchase price of their home with these loans. Plus, they can often get lower mortgage rates than those making a 20% down payment with a conventional loan.

However, there are a few downsides to this loan. Borrowers typically have to pay private mortgage insurance on their loans every month until they reach 20% equity in their home.

In addition, homes purchased with these loans must go through a thorough inspection and may require the seller to make repairs before the loan is approved. There are also limits on how much buyers can borrow. Plus, borrowers typically must have at least a 580 credit score to qualify for putting just 3.5% down.

4. Snag a VA or USDA loan

You can buy a home with 0% down—if you can qualify for one of these loans.

Activity-duty military personnel, veterans, their spouses, and those purchasing homes in rural areas can often qualify for a Veterans Affairs or U.S. Department of Agriculture mortgage where buyers don’t have to put anything down.

Bonus: These loans often come with lower mortgage rates, and VA loans typically don’t require private mortgage insurance.

5. Choose a 15-year mortgage

Choosing a 15-year mortgage can save you quite a bit of money over the long term, but buyers should anticipate higher monthly payments over the short term.

Mortgage rates are generally much lower on these loans than for a 30-year fixed-rate mortgage. You also pay the home off in half of the time. But since you’re paying it off earlier, your monthly payments can be much larger.

6. Buy mortgage points

Purchasing mortgage points from your lender can cost you more upfront when you take out a loan. But it can lower your mortgage payments permanently, saving you quite a bit of money each month.

Typically, points are sold in 0.25% increments. They generally cost about 1% of the full amount of the mortgage. So to bring your mortgage rate down by a quarter of a percentage, you would pay $4,500 on a $450,000 loan.

Make sure you plan on staying in your home for a while before purchasing points. It might not make much financial sense if you plan to sell in just a few years.

7. Shop for new construction

Look beyond the sticker price when considering buying new construction. Even if the purchase price is higher than a similarly sized home on the resale market, buyers might wind up with lower monthly mortgage payments than if they had purchased an older residence.

Many builders are buying mortgage rates down either permanently or through temporary 3-2-1 or 2-1 buy-downs. The larger, national builders often have lending arms that make it easier to provide those mortgage savings to buyers. Even smaller builders might offer similar incentives to attract buyers.

In addition, new construction isn’t as costly as many buyers believe. Many of the larger builders today are striving to put up smaller, more affordable homes. That’s helped to narrow the gap in prices.

In July, there was only a $30,000 difference between the median price of a typical new home, at $436,700, and an existing one, at $406,700, according to government and National Association of Realtors® data.

8. Seek out down payment assistance programs

This is one of my favorite tips because everyone loves free money! There are more than 2,000 down payment assistance programs available across the country for all first-time and even repeat buyers who qualify.

These programs provide assistance to buyers based on their annual incomes, professions, military service, racial backgrounds, disabilities, and where they are looking for homes, among other qualifications.

(Buyers can see what they might be eligible for here.)

9. Look at the homes that no one wants

Most buyers want a cute, turnkey home with a nicely landscaped yard. But they might be missing the potential of an attractively priced fixer-upper or a home that’s been sitting on the market for a while with a discounted price tag.

Homes become stigmatized in the minds of some buyers if they’re on the market for long periods or if deals fall through. But that might not be the fault of the seller or indicate something wrong with the property. It might be the buyer who was under contract couldn’t secure financing or changed their plans.

Other homes may not seem attractive in photos or in person, but they might just need a coat of paint and some minor cosmetic work to clean up nicely. And with all that money you’re saving on the purchase price, you might be able to turn these properties into some really special homes.

Just be sure to hire a home inspector and have a chat with a remodeler before you put in an offer so you understand the scale of the work that’s needed and how much it’s going to cost you.

10. Negotiate with sellers

Even in today’s competitive market, buyers can attempt to negotiate with sellers. Nothing ventured, nothing gained.

Now, this probably won’t work for well-priced homes oozing curb appeal in the most desirable neighborhoods. But sellers of homes that have been sitting on the market for a while, homes that need some work, or homes in less desirable locations mightº be willing to make a deal.

Some common things today’s buyers are asking for are for sellers to contribute to their closing costs, make pricey repairs, and temporarily buy down their mortgage rates for the first two or three years of their mortgage.

For this and related articles, please visit Realtor.com