Home ownership is one of the big goals most people have in life. For some, it doesn’t take very long to realize this goal. For others, it takes years to save up enough money and qualify for a loan. And while it generally makes more financial sense to buy than to rent (at least in the long run), don’t fall for the myth that home ownership is cheap.
4 Practical Ways to Save Money
When you rent a house or apartment, there are certain responsibilities you don’t have to worry about. For example, if the water heater goes out or an appliance breaks, your landlord is required to fix it for you. But as a homeowner, it’s all on you.
If you want home ownership to be a pleasant experience, you have to be smart with how you handle your money. Every situation is unique, but the following tips will help you save some cash.
- Put 20 Percent Down
Just because you qualify for a home mortgage, doesn’t mean you should buy a house. While there are ways to purchase a home with as little as zero to five-percent down, you should wait until you can comfortably put 20 percent down. Otherwise, you’ll have to pay private mortgage insurance (PMI).
“While it can vary depending on the provider and terms of the loan, PMI generally costs one percent of the loan amount per year,” Green Residential explains. “If your home costs $200,000, this means you’re paying $2,000 per year in PMI, or $167 per month. By making a down payment of at least 20 percent, you can avoid PMI altogether and keep more money in your account.”
- Make Extra Mortgage Payments
Most people get their mortgage bill in the mail each month and write a check for the appropriate amount. However, there’s nothing stopping you from making additional payments. In fact, paying additional on your premium balance can save you a significant amount of money in the long run.
“A 30-year fixed-rate mortgage at 4% and $200,000 borrowed would require about $140,000 in interest over the life of the loan,” real estate expert Erik J. Martin writes. “But if you were to prepay just an additional $100 a month toward principal, you would save about $30,000 in interest, and pay off that loan five years quicker.”
- Improve Insulation
If you have attic space in your home, you should think about improving the insulation. Boosting your insulation from R-11 to R-49 will cost you about $1,500 for an 800-square-foot attic, but will save you roughly $600 per year. Over a 10-year period, that’s a net savings of $4,500, or $450 per year.
- Purchase a Home Warranty Plan
The inevitable repairs and maintenance that come with home ownership can add up fast. You spend $100 to replace a part in your dishwasher, $400 to have an AC unit tuned up, $1,500 to replace the washing machine, etc. Before you know it, you’re out thousands of dollars – just trying to maintain your house!
One option is to purchase a home warranty plan. While prices vary by provider and plan, you can typically find a comprehensive plan for around $600. Considering that a single repair can cost you significantly more, it’s generally a smart idea.
Stop Wasting Money
Perhaps you’ve heard people say renting is like throwing money down the drain. While this is true on one level – you aren’t building any equity – you could say the same about homeownership. Homeowners who aren’t smart with how they handle things like service providers, financing, and home repairs and maintenance are also throwing money down the drain.
With that being said, pay attention to what you’re doing and always be on the lookout for ways to save.