Step-By-Step Guide to Saving Money as a First Time Home Buyer

State College's Guide to Saving Money as a First Time Home Buyer

As a first-time State College home buyer, navigating the world of real estate and finance can be exciting and daunting. However, with a well-thought-out plan and some practical steps, you can set yourself up for success and save money. From establishing a budget and researching mortgage options to exploring down payment assistance programs and comparing home insurance quotes, numerous strategies help you make the most of your home-buying journey.  

To save for a down payment, start with a budget

Home buyers in State College – or anywhere else in Pennsylvania – can save on the down payment they'll need by implementing a few strategies. These include setting a budget and saving a portion of their income specifically for the down payment, exploring down payment assistance programs and grants offered by government or non-profit organizations, seeking out special mortgage programs that require lower down payment percentages, and considering options like FHA loans that allow for smaller down payments compared to conventional loans.  

Shane Whitteker is the owner and chief broker at Principle Home Mortgage, State College’s mortgage broker. He recommends starting with a plan.  

“My first suggestion is to set up a budget so you know how much money you can feasibly save with a plan,” Whitteker says. “Then start working on executing that budget plan. If you have high interest debt, pay that down first then start saving for a home. Set up a good long-term plan.”

A better credit score can save you $$ 

A higher credit score can save you money on your mortgage by qualifying you for lower interest rates. Lenders consider credit scores to indicate your creditworthiness; a higher score demonstrates lower risk. With a lower interest rate, you can save thousands of dollars over the life of your loan. The exact amount you can save depends on various factors, such as the loan amount, term, and interest rate, but even a small reduction in interest rate can result in significant long-term savings. 

Lower your home insurance costs 

There are some steps you can take to lower your home insurance costs. Whitteker says home maintenance can help reduce claims, which can lead to lower rates.

“Keeping an eye on maintenance and being diligent about not having claims will keep your homeowner’s insurance cost down. Newer homes tend to have lower homeowner’s insurance expense as well,” Whitteker says. “For instance, making sure you remove outdoor hoses from spigots, installing a cutoff between and outdoor spigot and the source, keeping your gutters clean, having a clean chimney if you have a wood fireplace or stove, etc. Small things can make a big difference when it comes to insurance claims.“

Lowering your home insurance costs can help you save money as a first-time home buyer. Here are some steps you can take to achieve this: 

  • Shop around and compare quotes from multiple insurance providers.
  • Increase your deductible to reduce premium costs.
  • Improve home security with features like alarms and deadbolts.
  • Bundle your home insurance with other policies, such as auto insurance.
  • Maintain a good credit score, which can impact your insurance rates.
  • Consider installing safety features like smoke detectors and sprinkler systems.
  • Ask about discounts like being a non-smoker or having a claims-free history.

These steps can lower your home insurance costs and save you money in the long run. 

Mitigating closing costs 

Closing costs can add a financial burden to the home-buying process. However, there are potential strategies to help alleviate the costs. You can negotiate with the seller to cover a portion or all the closing costs. Another option is to explore down payment assistance programs, grants, or loans specifically designed to assist with closing costs. Additionally, you can consult with your mortgage lender to discuss the possibility of rolling the closing costs into your loan or opting for a no-closing-cost mortgage, which may have higher interest rates or other trade-offs. 

Your mortgage type can impact your costs 

Whitteker says there are solid mortgage options for buyers on a tight budget. 

“The lowest down payment mortgages are the USDA Rural Housing mortgage and the VA mortgage,” Whitteker says. “Both go to 100% of the purchase price with no down payment.  The USDA option allows the seller to pay up to 6% of the purchase price for closing costs and the VA mortgage allows the seller to pay all closing costs with no limit in percentage of the purchase price. VA closing costs are limited buy the program, but the seller’s contribution is not.” 

Exploring suitable mortgage options becomes crucial for home buyers on a tight budget. The Federal Housing Administration backs FHA loans and often requires a lower down payment, making them accessible for buyers with limited funds. On the other hand, USDA loans are specifically designed for low-income individuals and families purchasing homes in rural areas, offering attractive interest rates and low or no down payment requirements. 

Make extra payments to save big in the end 

The total interest paid throughout the mortgage can be decreased by making extra payments as a house buyer, which can result in financial savings.  

“Paying extra principle per month shortens the amortization term and reduces the amount of interest charged per month because the principal balance is comparatively lower,” Whitteker explains. “For example, if you have a mortgage of 200,000 at 6.5% and you pay and extra $50.00 per month, you will save 3 years and 1 month of time off the mortgage and $31,958.78 in interest over a 30-year period.“ 

Borrowers can reduce the length of the loan term and the total amount of interest paid by contributing more money to the principal. Since interest charges account for a sizable amount of the total cost of homeownership, this might lead to significant savings. Borrowers can lessen their debt load, pay off their mortgage more quickly, and save money on interest by consistently making extra payments.

Negotiating leverage is market dependent 

You can thoroughly research the property's market value and comparable sales to justify a lower offer. Additionally, you can negotiate for seller concessions, such as covering some closing costs or repairs. Another approach is to leverage time constraints, such as an expired listing or a motivated seller. Maintaining flexibility and effective communication throughout the negotiation process can increase your chances of securing a favorable deal. Keep in mind that your leverage in negotiating will be heavily dependent on the housing market.  

Location is a big influencer of price 

How can location impact the costs a home buyer will incur?  

“Location doesn’t really impact closing costs but does impact price,” Whitteker notes. “The better the location the higher the price and the more “liquid” the property is when you want or need to sell it.” 

Additionally, certain areas may have higher property taxes, insurance rates, or homeowner association fees. The cost of living in different regions can vary, affecting expenses such as utilities and transportation. Moreover, proximity to State College’s amenities, schools, and employment centers can impact convenience and daily expenses. Location is crucial for first-time home buyers to consider all associated costs before committing to a particular area.

Avoid these common home buying mistakes 

Whitteker says mental mistakes and not sticking to their financial plan are the most common errors prospective home buyers make.  

“Not being diligent and taking on unnecessary debt are common mistakes. When you want to buy a home, it is important to set your plan and stick with it.” 

You may be able to save with tax deductions 

Homeowners may be eligible to deduct certain costs of homeownership from their taxes. These deductions can include mortgage interest, property taxes, and, in some cases, mortgage insurance premiums. These deductions can reduce the overall tax burden and potentially result in significant savings. However, it's important to consult with a tax professional or advisor to understand the specific eligibility criteria and limitations associated with these deductions, as they can vary based on factors such as the homeowner's income, the value of the property, and local tax laws. 

As a first-time home buyer, following these steps to save money can help you have a successful and financially responsible home purchase. From understanding the importance of a down payment and maintaining a good credit score to exploring different mortgage options and maximizing tax deductions, these steps can help you save money and make informed decisions. 

To learn more, contact the State College mortgage experts at Principle Home Mortgage at (814) 308-0959.  

State College first time home buyer guide