Cheapest Ways to Buy a House

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Mar 20, 2023

Tired of renting and ready to buy that starter home you’ve been dreaming about? Whether you’re a first-time homebuyer or you’re just looking to save money on earnest money and closing costs, we’ve got you covered!

Buying a home can be an expensive endeavor. Here’s a quick breakdown of the normal cost to buy a home in the US.

  • Earnest money deposit upon contract signing (1% of purchase price)
  • Mortgage down payment (minimum of 3% of purchase price)
  • Closing costs including lender and title company fees (2% of purchase price)

If you add all of these amount up, you’ll end up needing at least 5-6% of the home sales price in cash and that’s being optimistic. Technically the 1% earnest money gets backed out of your “cash to close” amount, but more on that later.

After all the fees above are added up, you’d need $18,000 in cash to buy a $300,000 house. This represents 6% of the final sales price. Now let’s look at ways to reduce the amount needed to buy a home.

Cheap Ways to Buy a House

Using a combination of the approaches below, you can buy a house for as little as 0-3% of the purchase price versus the typical 6%. Some of these approaches require creativity and negotiating skills, while others have specific eligibility requirements.

Only put down 3% as your down payment

Conventional mortgages require at least 3% down, while FHA requires at least 3.5% down. Limit your out-of-pocket expenses by making the minimum down payment amount.

Ask the seller to pay up to 3% in “seller contribution”

A home seller can give you up to 3% of the sales price of the home to offset your “cash to close” amount. On a $300,000 home, that’s $9,000 contributed by the seller and a big chunk of money you don’t have to come up with. Obviously, the seller won’t just give you the money because you asked. Your agent can help you structure your offer creatively and make the other terms attractive.

Use first-time homebuyer programs and grants

There are several federal and state programs available for first-time buyers and low-income borrowers.

Use a USDA or VA loan if eligible

If you’re a veteran or live in a rural area, you can get a mortgage with 0% down payment. You’ll still need to pay closing costs, however.

Try house hacking

House hacking has become a popular option for owner-investors who purchase a home (usually a duplex) and then rent out part of the property to offset their mortgage.

Closing cost assistance

We covered seller contributions, but you can get closing cost assistance from other parties. For example, SimpleShowing is a real estate brokerage that offers a 1% commission refund to home buyers in certain states.

Lender credits

This is particularly common when purchasing a new construction home, but many lenders will offer closing cost credits, which help you offset cash out of pocket for pre-paid or escrow fees.

Final tips on how to buy a house cheap

When purchasing a home, decide if your objective is to limit out of pocket expenses, get a mortgage good rate or buy under market value. It’s often difficult to do all three, especially in a hot real estate market.

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