You may think that the only option when buying a home is to find an
attractive mortgage at an affordable rate and be done with it. But there are
far more options available, especially if you are looking for a lower payment
or loan amount.
Here are some ways to get your dream home for just a little less:
Buy It Direct
Forget going through a lender. If the house has been on the market for a long
time, you may be able to convince the seller to help you out. This is called
seller financing. In this scenario, you would agree to pay the seller
directly for a short period of time-normally no more than three years. After
this time, you would have to find a traditional mortgage to complete the
transaction and pay the seller in full.
This is a great option for those of you who may find it hard to qualify for a
traditional mortgage. It gives you three years to establish better credit and
get some equity in the home. It also allows you to negotiate lower interest
rates and decrease the amount of fees due at closing. A seller won't have
near the amount of administrative fees as a professional lending company
The reason this works for a seller is that he will be getting a steady stream
of cash that is not subject to capital gains taxes and he holds the house as
collateral for the loan so he assumes little risk. If you don't pay, he gets
the house back and tries to sell it again to someone else.
Getting a Little Works Too!
If you can't swing seller financing, perhaps you could try the 6% attempt.
This is a seller concession. During the sale, you agree to take out a loan
for 6% greater than the price of the home. The seller agrees to give you that
same 6% amount at the time of closing to cover costs.
1. The house must appraise at the sales price plus the 6% for this to work.
If it doesn't, you will have to try something else.
2. The 6% will be incorporated into the overall loan amount and will end up
in your monthly payments. This means an increase that you will end up paying
over the course of your term. You have to decide if that will work for you.
The lender will also check this to make sure you still qualify for the higher
3. There are some fees associated with closing that the seller cannot legally
pay. Even if you do this and your closing costs fall within the 6% amount,
you may end up paying some closing costs out of your own pocket.
The other seller-oriented option is to assume the current loan from the
seller. This means that you simply take over the existing mortgage instead of
getting a new one. This can be a great idea if the interest rate on the
existing loan is low. You also save on administrative fees for originating a
The drawbacks: In order to assume a loan, it must be transferable. Not all
loans are. And you must be able to pay enough cash or get a second mortgage
to cover the difference between the purchase price and the existing debt.
Pay It Now
It may save you money to pay down the principal faster than established in
the loan. Most loan payments you will make as a new homeowner will go for
nothing more than interest. In fact, you could spend a couple decades in your
home before you ever reach that point when you own more than the bank. But
there are ways to pay the principal down faster. What does this mean? Lower
interest rate in the long run.
Play the Field
Mortgage lenders want your business, and there are a lot of mortgage lenders
out there. Play the field. Find the one that will give you the best deal.
There are differences that could save you thousands. So, do your research
before you sign.
The best way to save money when buying your home is to talk to your financial
advisor and discuss the financial implications of your decisions. They are
trained to answer these questions and they also will be familiar with your
particular financial situation.