You’ve scrimped and saved for years; you’ve stuck to a tight budget faithfully. It’s been a dream of yours to buy your own home, and now, you’re hoping it’s going to be a reality. After scouring countless homes-for-sale sites on the internet, touring homes with your real estate agent, and driving through neighborhoods looking for “for sale” signs, you’ve finally found the home you want to live in for many years to come.
The problem is, can you actually afford it? You have a down payment, but when you were getting prequalified, the mortgage company explained there would be closing costs–that’s something you hadn’t really counted on. That means your down payment will have to be less, and your monthly payments once you get into the home will be more; or your down payment can stay the same, but you won’t be able to get furniture or anything else you might need for quite awhile.
You’re beginning to wonder if you should you just wait a while longer before taking the leap. Or is there some way homeownership can still become a reality with this house?
Actually, there are some great negotiation points you can include in your upcoming contract that may just solve your dilemma and still get you that home you love.
- Financing: negotiate price, closing costs, or points.
One of the first things individuals do to try and make their monthly payments more affordable is to try to negotiate on the price. For every $10,000 you can knock off of your purchase price on a 30 year loan at 5% interest, you would save $53.68. Not too shabby. And of course, there would be additional savings on other costs dependent on purchase price, such as homeowners insurance.
If those savings aren’t enough, you can also negotiate closings costs. Closing costs can be real shock for first-time homebuyers: loan origination fees, recording fees, lender title insurance, and inspection and appraisal fees among others (such as transaction-related taxes). At 2% to 5% of the home’s purchase price, a $300,000 price tag could be an additional $6,000 to $15,000 at closing. But what if you didn’t have to pay closing costs, or at least, not all of them? As a buyer, you can negotiate to have the seller pay all or part of the required costs.
Another area to negotiate is the payment of points. Points are fees paid directly to the lender at closing to reduce the interest rate on your loan. Each point is 1% of your loan amount–one point on a $300,000 loan would be $3,000. The more points you pay down, the more you can reduce the interest rate on your loan. At 5% over 30 years, your basic monthly payment (no taxes, insurance, or fees included) would be $1,610.46; at 3% over 30 years, the payment drops to 1,264.81 per month–$345.65 less per month! It’s huge if you can negotiate with the seller to pay (out of their proceeds) some points on your behalf at closing.
- Maintenance: negotiate a home warranty and an inspection (including the costs of repairs).
If the home you’re buying is more than five years old, most likely, your appliances will start having a lot of issues–some may be minor and others major, but either way, the added costs of repairing your appliances or replacing them, can add up quickly. As a homebuyer, you should always ask the seller to purchase a home warranty (even for a newer home) to cover the repair of important items such as heating and air conditioning systems, plumbing, and appliances should they break down. At a minimum, the buyer should negotiate for the seller to cover the first year’s premium.
It’s also important to negotiate into your contract a thorough inspection of every aspect of the home and the costs of any necessary repairs. That way, if an issue is found, you won’t find yourself with a house needing a new roof or all new plumbing (on your own dime) before you’re even settled in. Much better to be protected from unforeseen costs.
- Furnishings: negotiate to include appliances, furniture, and household items (such as curtains and light fixtures).
Another way to save costs is to negotiate with the seller to include appliances that may not already be included in the purchase price. Most appliances are standard, but some, like refrigerators, are often negotiable items. A basic, family-sized refrigerator would cost on average around $1,000. That could be a huge savings for your. Some sellers will even throw in washers and dryers if asked, saving you even more on future move-in expenses.
You may also find that your seller doesn’t mind leaving behind furniture and household items such as curtains and light fixtures. If you can negotiate these kinds of deals, you are that much further ahead when you move in.
Buying a home is full of hidden costs. You’ve tried to prepare yourselves by diligently saving and searching for something you could love and, hopefully, afford. But life is full of the unexpected, and those closing costs seem daunting. Don’t be discouraged, though. If you and your real estate agent are proactive and a little creative, you have several negotiation points that can save you a lot of money and help you to get that dream home.