How to Make Buying a Home More Affordable

These 11 Homebuying Tips Might Help You Save Money

Rising mortgage interest rates can make buying a home more challenging because higher rates mean that more of your monthly payment goes toward interest. This means that you can afford less expensive homes than you can when rates are low.

There are ways you can save money when you are buying your next home. When rates are high, homeowners often need to make concessions to close the sale of their house. Check out these affordability tips:

1. Think About Buying a Townhouse or Condo

People often imagine single-family homes when they are thinking about buying a new home. However, buying a condo or townhouse might meet your needs, too—and these homes can be less expensive. Note that condos and townhomes are frequently part of homeowners associations, and you typically have to pay HOA fees, as a result.

2. Think About Buying a Fixer-Upper

Houses that need remodeling or repairs are typically cheaper to buy than homes that are move-in ready. If you find a good home in a good location that needs work, buying it now and remodeling it later can help make your home purchase more affordable. It's even better if you can do the work yourself. Learn more about the pros and cons of fixer-upper houses.

3. Prepare for Successful Price Negotiations

Negotiating the best possible price with the seller helps make homebuying more affordable. Set yourself up for success! Get pre-qualified to demonstrate that you can afford a mortgage and get a proof-of-funds letter to show that you can afford to make the down payment and pay closing costs.

Research recent sales for similar homes in the community where you want to buy in order to understand the right price for you. Let your real estate agent handle the negotiations and to demonstrate that you are a serious buyer who is committed to closing the sale (if you get the right price).

4. Make a Higher Down Payment

Making a large down payment is a great way to make buying a home more affordable. If you make a down payment of 20% or more with a Conventional loan, you can avoid paying for private mortgage insurance. You'll need to borrow less money to buy the home, which will lower your monthly payment, as well as the amount of interest you’ll pay over the life of the loan.

If you are selling your current home as part of buying a new home, the value of your home's equity can be a great source for your new down payment.

5. Ask the Seller for a Mortgage Buy-down

Redfin reports that nearly half of homeowners made concessions to close their home sale between December 2022 and February 2023. Ask the seller to pay for a mortgage buy-down, which is a way of temporarily reducing the cost of your monthly payments. Learn more about mortgage buy-downs.

6. Ask the Seller to Make Concessions

You can also ask the seller to help pay some of your closing costs or repairs to the home. There are limits on the total amount of seller concessions homeowners are allowed to make.

7. Improve Your Credit Score

Having a higher credit score might help you get a lower interest rate. That’s because lenders see homebuyers with high credit scores as valuable customers whose business they want to earn. Learn more about how to improve your credit score.

8. Pay Down Debts

Paying down money you owe on other loans might also help you get a lower rate. Paying down debt may increase the amount of money that lenders are willing to let you borrow, too. Learn more about mortgage debt-to-income ratio.

9. Consider an Adjustable-Rate Mortgage

Adjustable-rate mortgages often have lower starting interest rates than fixed-rate mortgages, which can make your payments more affordable during the early years of the loan.

One common type of adjustable-rate mortgage is a 5/1 ARM. This means that the interest rate will be fixed during the first five years of the mortgage, then the rate will adjust once a year, according to the terms of the loan. Your mortgage interest payment might go up, down, or stay the same, as a result. Learn more about adjustable-rate mortgages.

10. Shop for Homeowners Insurance

You, typically, pay the cost of your homeowners insurance as part of your monthly mortgage payment. Shopping for homeowners insurance might help save money on your payments.

11. Check for Homeowner Tax Deductions

Sometimes, owning a home comes with tax deductions. When you have a mortgage, you are frequently able to deduct the costs of your interest payments when you itemize your deductions. You may qualify for other deductions, too. Consult with a tax advisor for more information. Learn more about tax deductions for homeowners.

Freedom Mortgage is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such. Consult a financial advisor before making important personal financial decisions.