Most people buy a home as an investment. They regard it as the smart thing to do over the long haul, so they fork over a hefty down payment in order (they hope) to own a sizeable asset someday.
But nobody tells you how expensive home ownership can truly be.
Seven Cost-Effective Tips for Inexpensive Homeownership
Renting is like throwing money down the drain. You might as well buy a house. Chances are you’ve heard someone express such a sentiment before.
Perhaps you’ve even said something to this effect. And though there is some truth to these ideas, statements like these tend to overlook the host of hidden expenses attached to home ownership.
If you like the idea, and believe it would be beneficial to your financial situation, it’s necessary to take the time to figure out how you can make it more cost-effective for your family. Here are seven basic ideas.
1. Don’t Be House Poor
The first step to affordable homeownership is to buy only as much house as you can reasonably afford. The key word, of course, is “reasonably.”
The figure the bank approves and the amount you can actually pay each month without feeling the strain can be substantially different. Banks approve people for loans based on a limited number of factors.
They typically check income, debt-to-loan ratio, liquid cash, credit scores, and a few other measures. But what they don’t know is how you spend your money.
One person who earns $150,000 a year may qualify for a $400,000 loan, but find the mortgage payment is more constraining than someone whose salary is just $100,000 per year. Personal factors and affordability can play a huge role the bank simply can’t factor in.
Your goal is to buy a house that leaves enough room in your monthly budget for you to live a comfortable lifestyle. If the monthly payment is high enough that it strains your resources to make ends meet, you have too much house for your lifestyle.
2. Refinance Your Mortgage
By now, most people have refinanced high-interest-rate mortgages and taken advantage of the record lows we’ve enjoyed over the last few years. If you haven’t, now’s a good time.
Refinancing your mortgage might not seem like a big deal in the short run, but it will save you thousands of dollars over the life of your loan. So it’s definitely something to look into.
3. Switch to a 15-Year Mortgage
This might sound a little counterintuitive, but there can be value in switching from a 30-year mortgage to a 15-year one (assuming it doesn’t strain your finances).
In the short term, refinancing to a 15-year mortgage will push your monthly payment higher. However, a larger portion of your monthly payment will go toward the principal balance, and not just the interest.
You’ll also be able to pay off the house 15 years sooner. Over the long term, this could save you tens of thousands of dollars.
4. Comparison Shop for Homeowners Insurance
The average cost of homeowner’s insurance around the United States is around $1,000 a year. Some cost significantly more, others less.
Regardless of where you fall on the spectrum, you can take steps that could potentially lower the amount you pay. For starters, you should compare quotes every few years. The insurance industry is competitive, so you may be able to save a few bucks a month by switching to another provider that offers the same level of coverage.
The second big option is to increase your deductible to lower your premium payment. Deductibles can be as low as $50 or as high as $7,500. Nobody would recommend going as high as that, but you may find another amount practical.
“You want your deductible to reflect the highest amount you’d be comfortable paying out of pocket at any given time in the year,” ValuePenguin explains. “For most homeowners, we would recommend a $1,000 deductible which can save you around 15% on your payments.”
5. Strip Out Unnecessary Expenses
Almost every household pays for certain expenses they don’t need. It’s ultimately up to you to be the judge of what’s necessary and what is a luxury, as well as which luxuries you definitely want to pay for.
Some of the most common expenses people strip out include:
- Cable television
- Security and alarm monitoring services
- Professional landscaping
- Home warranty service
It’s up to you to determine what you want to keep, but you may find opportunities to slash $100 a month without sacrificing all that much.
6. Fix Drains on Energy
Renters often pay a fraction of utility costs … or they’re billed a standard rate as part of their monthly payment. When you’re a homeowner, you’re on the hook for 100 percent of those costs.
Thus, if you want to save money each month, you need to be more conscious about how much energy you use. The biggest energy hogs in the average home include inefficient appliances, air leaks and gaps around windows and doors, poorly insulated attic space, and an over-reliance on HVAC to heat and cool the home.
Address some of these issues, and you could realize major savings.
7. Become Your Own Handyman
It pays to get your hands dirty. Thanks to the Internet, YouTube, and other resources, it’s easier than ever to learn how to handle basic maintenance, repair, and remodeling tasks on your own.
By doing jobs yourself, and not hiring out the work, you can save 50 percent or more on a task.
Buy and Sell With Green Residential
At Green Residential, we believe home ownership is a foundational pillar of the American dream. We also understand it can be expensive and all but unaffordable for some Americans.
Thus, we believe in offering our clients professional expertise that doesn’t erode the value of their biggest asset. When you sell a home with Green Residential, we don’t take the standard industry commission of 3 percent (which can be $15,000 on a $500,000 home).
Instead, we operate on a flat-fee structure that allows you to hang on to your hard-earned equity. For more information, please reach out!