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Mortgage

The Pros and Cons of a Hard Money Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Hard money loans are a way to borrow money outside of traditional mortgage lenders. These loans can help homeowners renovate their property or buy a second home, and real estate investors may find them perfectly suited for fix-and-flip operations. However, hard money loans often have short payoff timetables and higher interest rates, meaning they’re not ideal for every situation.

How do hard money loans work?

A hard money loan is a short-term loan secured by real estate, not credit. Unlike mortgages, which take a long time to underwrite, hard money loans can be secured quickly — making them a great choice if you’re in need of fast cash. The underwriting standards are typically less strict too because they’re issued through private lenders, not banks or credit unions.

That’s also why most hard money lenders specifically target real estate investors, who want to make quick offers on bargain properties. Some lenders won’t even work with traditional homebuyers, so if you’re looking for a mortgage alternative for an owner-occupied property, this may not be your best bet.

For a hard money loan, “the lender is at liberty to decide the circumstances under which they’re willing to make that loan,” said Tendayi Kapfidze, the chief economist at LendingTree, which owns MagnifyMoney. Each lender establishes its own requirements for credit scores, debt-to-income (DTI) ratios and loan-to-value (LTV) ratios and often, these standards are looser than what traditional mortgage lenders may require.

“Typically, the buyer puts up significant collateral, so if things go astray, the lender can recoup their outlay,” Kapfidze said.

For most types of hard money loans, that collateral is the same: your house. If borrowers default on their loan, the hard money lender will take and sell the home. That makes these loans riskier than standard mortgages.

Unlike traditional mortgages, lenders expect repayment much more quickly. Expect your hard money loan to last between 12 months and five years — but considering the high interest rates, you’ll probably want to pay off your debt as quickly as possible, anyway.

“The biggest difference with hard money loans is the interest rate,” Kapfidze said. “If you’re getting a mortgage backed by Fannie Mae, Freddie Mac or government interest rates, there’s a lower interest rate because of the perceived guarantee. There’s less risk for the lender.”

While the exact interest rate will vary by lender, borrowers may pay up to 15% annual percentage rate (APR), or more.

Hard money loans can help buyers a number of ways. Common loan types include, but are not limited to, the following:

  • Bridge loans, which help buyers “bridge the gap” between the current property they own and the property they hope to buy. A hard money provides short-term financing to help with the down payment and moving cost, which is typically repaid after closing.
  • Fix-and-flip loans, which help potential buyers purchase distressed properties intended for renovation and reselling.
  • Owner-occupied loans, which help consumers with poor or no credit buy a home.

Benefits of hard money loans

With high interest rates, short payment terms and your house on the line, you might be wondering why anyone would want a hard money loan. But there are a number of circumstances well-suited for these unique loans.

“If you’re not able to access a traditional loan, then maybe there’s an opportunity here,” Kapfidze said. For consumers who have difficulty obtaining traditional loans or for projects that don’t conform with traditional lenders’ requirements, a hard money loan may be necessary.

The benefits of a hard money loan are:

  • Speed. Buyers in need of funds fast may choose a hard money loan. Because the underwriting guidelines for hard money lenders are often less strict, and require less documentation, the loan can close quickly.
  • Lenient requirements. Have a low credit score? A tax lien on your house? Are you a foreign national struggling to establish U.S. credit? Underwriting standards for hard money lenders are significantly more lenient than traditional lenders.
  • Flexibility. Many hard money lenders provide funds from their own reserves, allowing them flexibility with the loan’s terms — especially in terms of the repayment timeline. Whether you want to repay the loan in six months or seek a longer-term period, lenders aren’t restricted to pre-established term sheets.
  • Leverage in the real estate market. For flippers hunting down bargain properties, finding fast funding is essential. Quick financing lets them snap up the perfect home for rehab before other buyers do.

Pitfalls of hard money loans

While hard money loans are ideal for a number of circumstances, these borrowed funds can be risky.

“If you’re unable to pay back the loan and you have your property as collateral, your lender has a claim on that property,” Kapfidze said. And while that may also be true with traditional mortgages, the high interest rate and quick payment schedule common among hard money loans might make your monthly payment sky-high.

Some of the major pitfalls of hard money loans include:

  • Higher interest rates. Even if you pay off your loan in full, you’ll end up paying a lot more interest than you would with a standard mortgage. For example, a $50,000 loan with a 15% interest rate and a five-year repayment plan will cost you more than $21,000 over the life of the loan.
  • Shorter terms. Repaying a large loan in five years or fewer means higher monthly payments. Understand how the true costs of your loan fit into your household or business budget before proceeding.
  • Little oversight. Unlike traditional mortgage lenders, hard money lenders experience little government oversight. Borrowers must take care to avoid unethical lenders looking to exploit desperate buyers.

When to consider a hard money lender

Still not sure if a hard money lender is right for you? Here are some circumstances where this loan might be a good fit.

  • You can’t find traditional financing — especially for an investment property. Many hard money loans are designed for real estate investors, not your average buyer looking to purchase an owner-occupied property. In fact, many hard money lenders won’t even lend to consumers. But if you’re looking to renovate an investment property and don’t meet traditional lenders’ requirements, a hard money loan may help you proceed.
  • You need money fast. These loans send funds more rapidly than a traditional lender. If the local real estate market is hot and you need cash quickly, a hard money loan may entice the sellers to choose you.
  • Your credit score is low. Your property serves as collateral for a hard money loan — not your creditworthiness. Buyers with extremely poor credit may not meet the requirements for a traditional loan, making a hard money loan their only choice.

Where to find reputable hard money lenders

A Google search will turn up hundreds of eager hard money lenders, but finding out which ones are reputable and which are not can be difficult. Talk to real estate investors in your area to learn about the best lenders nearby.

Ask any potential lender the following questions:

  • Do you only work with investors? If you’re hoping to use these funds for an owner-occupied property, a hard money lender that works exclusively with real estate investors won’t be a good fit.
  • What is the interest rate? If you don’t see interest rates outlined on the lender’s website, ask directly. You don’t want to be surprised by a high interest rate.
  • How will I repay the loan? Hard money lenders handle repayment in different ways. Some ask for interest-only payments, and some request full repayment at the loan’s end. Others work much like traditional mortgage lenders, with regular monthly payments throughout. Find out what each lender expects so you can be sure the repayment fits within your budget.
  • What fees will I pay? Get a thorough accounting of any fees you might pay, as well as any points you’ll be expected to pay. A “point” is an upfront fee, calculated as a certain percentage of the total loan that lets you lower your interest rate.
  • What happens if I pay the loan off early — or late? Some lenders don’t let you pay a loan’s balance early. And some charge additional fees if you pay any installments late. Know what your lender expects ahead of time.

Risks to look out for

Not everyone who labels themself a “hard money lender” is worth working with. Loan sharks may masquerade as a reputable lender — but their real goal is causing you slow financial pain before stealing your house from under you.

First, check your lender’s license. The Nationwide Multistate Licensing System offers information about licensing requirements for all 50 states, and allows you to search by lender to ensure its validity. Asking for your lender’s license number can help you weed out potential loan sharks, but it’s no guarantee.

Next, look at the interest rate: Each state has regulations limiting how high lenders can set this number. But loan sharks may not shy away from usury — the legal term for charging illegal interest rates. Knowing your state’s legal interest rate limits will help you avoid predatory loans. And pay attention to adjustable rates, too. Sure, the initial rate may be attractive, but soon it may rise dramatically.

Compare your payments amount to the interest. A common feature of subprime loans is a regular payment that doesn’t even cover the accruing interest. Over time, the amount due continues to grow. If regular payments won’t pay off your loan, you’re probably dealing with a shark.

Asking a real estate lawyer to look over your hard money loan contract is the best way to know you’re not being fleeced. And yes, you do need a contract. Don’t accept any money until both you and the lender have signed.

Alternatives to hard money loans

Just because you have poor credit doesn’t mean a hard money loan is your only option. If you’re looking to purchase a house, there are a number of federally regulated mortgage programs that offer lower interest rates and better terms. Consider looking for a loan through the Veterans Administration available for veterans or the Federal Housing Administration, which can help make owning a home affordable.

Other options include:

  • Home equity loans.These loans offer your home’s equity — or the difference between your home’s worth and how much you owe — in cash. Expect an interest rate of 4.5% to 6%, although underwriting standards will be stricter than those of a hard money lender. Home equity loans can help you afford a down payment or the kitchen renovation of your dreams.
  • Home equity line of credit (HELOC). A home equity line of credit works much like a home equity loan, except not all the money is provided up front. Think of it like a credit card: You can take out funds as needed and pay down your balance over time. Keep in mind these loans often have a variable interest rate, which goes up and down in tandem with the nationwide prime rate.
  • Cash-out refinancing. Much like a home equity loan, a cash-out refinance gives you funds equal to your equity — but it also replaces your current mortgage. That means you may end up paying a higher interest rate, depending on the current prime mortgage market.
  • Business line of credit. Plan on making it big as a real estate investor? A business line of credit gives you easy access to quick cash when necessary, helping you purchase affordable properties quickly.

If you need cash fast and don’t have the credit for traditional loans, a hard money loan may suit you, especially if you’re purchasing investment properties. But pay careful attention to the loan’s interest rates and repayment terms. Loan sharks may masquerade as hard money lenders, and signing the contract for one of their loans can leave you underwater. Before taking out a hard money loan, make sure there’s no other, traditional loan that suits your situation.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Wiebe
Jamie Wiebe |

Jamie Wiebe is a writer at MagnifyMoney. You can email Jamie here

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Life Events, Mortgage

The Hidden Costs of Selling A Home

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you decide to sell your home, you may dream of receiving an offer well above your asking price. But putting your home on the market requires you to open your wallet, which could cut into your potential profit.

While some line items probably won’t come as a surprise, you may find that there are a handful of hidden costs.

Below, we highlight those unexpected expenses and everything else you need to know about the cost of selling a house.

The hidden costs of selling a home

It’s easy to fixate on the money you expect to make as a home seller, but don’t forget the money you’ll need to cover the cost to sell your home.

A joint analysis by Thumbtack, a marketplace that connects consumers with local professional services, and real estate marketplace Zillow, found that homeowners spend nearly $21,000 on average for extra or hidden costs associated with a home sale.

Many of these expenses come before homeowners see any returns on their home sale. Money is spent in three main categories: location, home preparation and location.

Location

Your ZIP code can influence how much you pay to sell your home. Many extra costs are influenced by regional differences — like whether sellers are required to pay state or transfer taxes.

For example, if you’re in a major California metropolitan area like Los Angeles, you may pay more than double the national average in hidden costs when selling your home.

Below, we highlight 10 of the metros analyzed in the Thumbtack/Zillow study, their median home price and their average total hidden costs.

Metro Area

Median Home Price*

Average Total Hidden Costs of Selling

New York, NY

$438,900

$33,510

Los Angeles-Long Beach-Anaheim, CA

$652,700

$46,060

Chicago, IL

$224,800

$18,625

Dallas-Fort Worth, TX

$243,000

$19,350

Philadelphia, PA

$232,800

$21,496

Houston, TX

$205,700

$17,477

Washington, D.C.

$405,900

$34,640

Miami-Fort Lauderdale, FL

$283,900

$24,241

Atlanta, GA

$217,800

$18,056

Boston, MA

$ 466,000

$35,580

Source: Thumbtack and Zillow analysis, April 2019.


*As of February 2019.

Generally, selling costs correlate with the home price, so expect to pay a little more if you live in an area with a higher-than-average cost of living or one that has a lot of land to groom for sale.

Home preparation

Thumbtack’s analysis shows home sellers may spend $6,570 on average to prepare for their home sale. These costs can include staging, repairs and cleaning.

Buyers are generally expected to pay their own inspection costs; however, if you’ve lived in the home for a number of years and want to avoid any surprises, you might also consider paying for a home inspection before listing the property for sale. Inspection fees typically range from $300 to $500.

Staging is often another unavoidable expense for sellers and can cost about $1,000 on average, according to HomeAdvisor. Staging, which involves giving your home’s interior design a face-lift and removing clutter and personal items from the home, is often encouraged because it can help make the property more appealing to interested buyers.

It also helps to have great photos and vivid descriptions of the property online to help maximize exposure of the property to potential buyers. If your agent is handling the staging and online listing, keep an eye on the “wow” factors they include. Yes, a virtual tour of your house looks really cool, but it might place extra pressure on your budget.

You could potentially save hundreds on home preparation costs if you take the do-it-yourself route (DYI), but expect a bill if you outsource.

Closing costs

Closing costs are the single largest added expense of the home selling process, coming in at a median cost of $14,,281, according to Thumbtack. Closing costs include real estate agent commissions and local transfer taxes. There may be other closing costs, such as title insurance and attorney fees.

Real estate agent commissions range from 5-6% of the home price, according to Redfin. That amount is further broken down by 2.5-3% being paid to the seller’s agent and the other 2.5-3% being paid to the buyer’s agent.

The taxes you’ll pay to transfer ownership of your home to the buyer vary by state.

Other closing costs include title search and title insurance to verify that you currently own the home free and clear and there are no claims against it that can derail the sale. The cost of title insurance varies by loan amount, location and title company, but can go as high as $2,000.

If you live in a state that requires an attorney to be present at the mortgage closing, the fee for their services can range from $100 to $1,500.

There are also escrow fees to factor in if you’re in a state that doesn’t require an attorney. The cost varies and is usually split the homebuyer and seller.

If you have time to invest, you could try listing the home for sale by owner to eliminate commission fees. One caveat: Selling your home on your own is a more complicated approach to home selling and can be more difficult for those with little or no experience.

Other home selling costs to consider

Now that you have an understanding of the costs that may get overlooked, remember to budget for the below expenses as you prepare to sell your home.

Utilities

It’s important that you make room in your budget to keep the utilities — electricity and water — on until the property is sold. (This is in addition to budgeting for utilities in your new home.) Keeping these services active can help you sell your home since potential buyers won’t bother fumbling through a cold, dark property to look around. It may also prevent your home from facing other issues like mold during the humid summertime or trespassers.

Be sure to have all of your utilities running on the buyer’s final walk-through of the home, then turn everything off on closing day and pay any remaining account balances.

Homeowners insurance

Budget to pay for homeowners insurance on the home you’re selling as well as your new home. You’ll still need to ensure coverage of your old property until the sale is finalized. Check the terms first, as your homeowners insurance policy might not apply to a vacant home. If that’s the case, you can ask to pay for a rider — an add-on to your insurance policy — for the vacancy period.

Capital gains tax

If you could make more than $250,000 on the home’s sale (or $500,000 if you’re married and filing jointly), take a look at the rules on capital gains tax. If your proceeds are less than the applicable amount after subtracting selling costs, you’ll avoid the tax. However, if you don’t qualify for any of the exceptions, the gains above those thresholds could be subject to a 15% capital gains tax, or higher. Consult your tax professional for more information.

How to save money when selling your home

Keep the following tips in mind when you decide to put your home on the market:

  • Shop around and negotiate. Don’t settle on the first companies and professionals you come across. Comparison shop for your real estate agent, home inspector, closing attorney, photographer, etc. It could also work in your favor to try negotiating on the fees they charge to save even more.
  • Choose your selling time carefully. The best time to sell your home is during the spring and summer months. If you wait until the colder months to sell, there may not be as much competition for your home.
  • DIY as much as possible. Anything you can do on your own to spruce up your home — landscaping, painting, minor repairs, staging — can help you cut back on the money you’ll need to spend to get your home sold.

The bottom line

There are several upfront costs to consider when selling your home, but planning ahead can help you possibly reduce some of those costs and not feel as financially strained.

List each cost you’re expecting to pay and calculate how they might affect the profit you’d make on the home sale and your household’s overall financial picture. If you’re unsure of your costs, try using a sale proceeds calculator to get a ballpark estimate of your potential selling costs. Be sure to also consult a real estate agent.

If you’re starting from scratch on your next home, here’s what you need to know about the cost to build a house.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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Mortgage

When Is the Best Time to Buy a House?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Fall may be the best time to look for a house
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Timing a new home purchase can be tricky. Should you start looking in the spring or in the summer? Should you wait for lower interest rates, or make an offer on a house you love even though the price is higher than what you budgeted? These are a few questions you may be pondering if you’re considering buying a house.

It’s common to look for cues about the best time to buy from the local housing economy or from what friends and real estate agents say, but the answer often lies closer to home — with an honest look at your personal finances. We’ll delve into some facts and figures to help you answer the question: When is the best time to buy a house?

The best time to buy a house is when you’re financially ready

Your kitchen table may be covered with listings of all the homes you’re interested in, detailed analyses of mortgage interest rate trends, historic home price appreciation and a plethora of other technical financial data about the timing of a home purchase. None of that information will matter if you aren’t financially ready to buy a home.

So how do know when you’re financially ready to buy your home? We’ve come up with five sings to help you determine if your homebuying timing is right.

1. You know your payment comfort zone

Before you ever speak to a loan officer, do some soul searching about your payment comfort zone — that is, how much you can comfortably afford to spend on a monthly mortgage payment alongside other regular expenses. This might be an unfamiliar concept, but taking the time to seriously consider your payment comfort zone may result in a different monthly payment target than the “maximum qualifying” number you’ll receive from a lender.

The Consumer Finance Protection Bureau considers 43% to be the maximum debt-to-income ratio (DTI) to meet the definition of a “qualified mortgage” — the stamp of approval from the regulatory powers that you’ll be able to afford your mortgage. Just multiply your monthly income by .43 and you’ll arrive at the government recommended total debt number. For example, if you earn $6,000 per month, your total debt including your monthly mortgage payment shouldn’t be more than $2,580. But is that really your payment comfort zone?

Start by asking yourself questions like how much do you take home every month after health insurance, retirement savings, local and federal taxes and Social Security deductions? What about your gym membership, the kids’ karate classes and the new organic food regimen that just pushed your grocery budget from $400 per month to $600?

When you start subtracting the realities of your month-to-month budget from your take-home pay, $2,580 of mortgage and other debt may not leave you much breathing room for a sudden pipe burst in a bathroom, or an air conditioner that takes its last breath on the hottest day of the summer.

Once you’ve worked the numbers backward from all of your monthly expenses — not just the ones the lender uses to get you preapproved for a mortgage — you’ll have an honest idea of what you can comfortably afford.

Here’s a side-by-side review of the money left over from a $6,000 monthly income when considering your organic fruit diet, martial artist kids and your monthly commitment to fitness, assuming you take home about 75% of your before-tax income.

Money left over just looking at 43% DTIMoney leftover after expense reality check
$6,000 before tax income$4,500 take-home pay
($2,580) suggested expenses for 43% DTI($600) (gym membership/karate/organic grocery markup)
($2,580) suggested by 43% DTI
$3,420 extra income suggested by lending guidelines$1,320 actual leftover real-life income

If your monthly income before taxes is $6,000 and you buy a house using the 43% rule based on your real life take home pay and additional expenses, you’ll have $1320 left over every month for gas, groceries, utility and all other bills.

Make sure that’s enough cushion for your month-to-month expenses, and if it’s not, start scaling back your monthly payment cushion until you’ve got more breathing room in your monthly budget to comfortably cover your day-to-day spending and other obligations.

2. You know your credit score and it’s as high as possible

Besides your DTI ratio, your credit score is the most important factor in getting you approved for and snagging the best rate on a mortgage. You’ll want to get your credit in good shape before you start shopping for a mortgage.

Start by checking your credit reports for errors because mistakes could be dragging your score down. You’ll want to initiate any disputes to correct errors at least six months before you shop for a mortgage, because lenders will require you to pause any disputes in order to get your mortgage approved.

Next, review your credit scores and the factors that may be bringing them down. (Find them at https://my.lendingtree.com.) While it does take time to improve your score, one way to boost it quickly is to pay down your credit balances. This will improve your utilization ratio, or the amount of credit you’re using compared to the amount of credit available to you. Try to do this at least three to four months before you apply for a mortgage so the credit bureaus have time to reflect any payments you’ve made. And focus on making all your credit payments on time.

3. You have your down payment and emergency fund saved

When you were in the process of determining your payment comfort zone, you probably spent some time crunching down payment numbers. Generally, the more you put down, the lower your overall payment will be.

A 20% down payment will help you avoid mortgage insurance on a conventional loan, but even if you don’t have that much saved, every extra 5% down will save you money. Mortgage insurance (also called private mortgage insurance or PMI) protects lenders against losses if you default on your loan. The less you put down, the more PMI you pay monthly on a conventional mortgage.

The table below illustrates the impact every additional 5% down makes on a $200,000 house if you have a 760 credit score and take out a 30-year fixed rate of 4.25% on a conventional loan in Arizona.

Down paymentLoan amountMonthly mortgage insuranceTotal monthly PIMI (Principal/interest/mortgage insurance)
5%$190,000$193.17$1,127.86
10%$180,000$130.50$1,015.99
15%$170,000$66.58$902.88
20%$160,000$0$787.10

In addition to your down payment, financial planners often recommend having three to six months’ worth of basic expenses in an emergency fund. Lenders also like to see extra money in the bank so they know you have the funds on hand to make extra payments or cover unexpected home repair expenses.

4. Your job is stable

It’s easiest to qualify for a mortgage if you have a salaried job or a full-time hourly position. If you have a position that only has a temporary base pay that will end in the near future, you may have a hard time getting approved. If you’ve been in a commissioned or self-employed position for at least two years and show enough income to qualify on your tax returns, then this is a good time to buy.

5. You plan to stay in your current location for 5-7 years

You may hear the expression buying a home is one of the biggest investments you’ll make. The most disciplined investors also talk about looking at the long term versus the short term.

When it comes to real estate, the “5-year home sale rule” refers to the fact that you have a better chance of recouping the cost of buying a home if you stay in the home for at least five years. By that time, you’ll have made 60 mortgage payments, and in most cases, you’ll see home values in your area gradually rise.

The combination of these factors usually results in a sweet spot for reselling after five years. This is important because as a home seller, you’ll be paying all of the real estate commissions for the services agents provide to sell your home. Those fees can be as high as 6% or more, and that’s money that comes off the top of the profit you make.

The example below shows how the 5-year rule works. It assumes you put down 5% on a $250,000 home with mortgage rate of 4.25%, the market appreciates 6% per year for the next five years (it has averaged 7-8% per year since 2007-08), and selling costs total 8%.

Year since purchaseHome value at 6% annual appreciation*Principal balanceTotal equitySelling costs 8%Net profit at sale
1$265,000$233,496.07$31,503.93$21,200$10,303.93
2$280,900$229,318.61$51,581.39$22,472$29,109.39
3$297,754$224,960.12$72,793.88$23,820.32$48,973.56
4$315,619$220,412.74$95,206.26$25,249.52$69,956.74
5$334,556$215,668.28$118,887.72$26,764.48$92,123.24
*Average appreciation rate since the 2007-08 financial crisis

It’s best to buy when rates are heading down

It’s impossible to know exactly what interest rates are doing, but if you see a lot of news about rates dropping, it’s worth it to get a payment quote. From December 2018 to August 2019, mortgage rates offered for many mortgage programs dropped nearly one percentage point, which has a huge impact not only on your monthly payment, but on how much interest you pay over the life of the loan.

We’ll look at how a one percentage point reduction in the interest rate can make a monthly payment difference for a $150,000, $250,000 and $350,000 loan. Using the 5-year rule, we’ll also look at how much extra equity and interest savings you realize by the time you make your 60th payment (12 months of payments x 5 years = 60 payments).

Loan amountMonthly payment at 4.75%Monthly payment at 3.75%Monthly payment savingsInterest savings over 5 years at 3.75%Extra equity at 5 years
$150,000$782.47$694.67$87.80$7,399.24$2,131.38
$250,000$1,304.12$1,157.79$146.35$12,331.08$3,552.30
$350,000$1,825.77$1,620.90$204.87$17,264.88$4,973.22

The bigger the loan amount, the more the impact on your monthly payment savings, total interest costs and equity build up. This makes shopping around for a mortgage and locking in a rate when you find the best deal even more important.

It’s best to buy when home prices are leveling off

The price you pay is just as important as the interest rate when it comes to buying. When home prices level off or rise at a slower pace, sellers tend to put their houses on the market at a more rapid pace, as they worry they may miss out on getting top dollar if prices stall out.

That’s good news if you’re a buyer, because more houses for sales may mean lower prices. Sellers may also consider contributing toward your closing costs or help you buy discount points to get a lower rate. This is also known as a “buyer’s market,” because it tends to be more advantageous to buyers than sellers.

Sales price also affects how much money you need to put down, so getting the best price will help you leave some of that down payment money in the bank to build up your emergency fund even further. Here’s an example of the effects of a 5% difference in price on your down payment, and assuming the seller is willing to pay 3% of your closing costs.

Sales price5% down payment10% down payment3% seller paid costs
$200,000$10,000$20,000$6,000
$210,000$10,500$21,000$6,300
$220,000$11,000$22,000$6,600

If you can buy a home for $200,000 versus $220,000, you’ll save $1,000 in down payment (assuming you’re putting 5% down), and the seller can potentially pay $6,000 in closing costs. The most common signs that the market is turning in your favor are “For Sale” signs. If you start seeing more of them popping up in your area or in a neighborhood you’ve had your eye on for a while, chances are you’re entering a buyer’s market.

The best times of the year to buy a home

Spring and summer are the most popular times to buy. Summer can be especially expensive for families to buy because sellers know there is pressure to find something and get settled before the start of the school year. Conversely, fall and winter are slower seasons for home sales. As a buyer, there are some months and even days when you might be able to save a bundle of cash if you’re able to make an offer and close during unpopular selling months.

The October homebuying advantage

October consistently ranks in the top three months for buyers, according to an analysis by ATTOM Data Solutions that examines dates from 2011 to 2018 during which sellers were least likely to charge a premium for single-family homes and condos. During this time, sellers are likely to accept premiums that are one-half to two-thirds lower than the highest premium months of the year (March to July).

With kids back in the full swing of school, sellers lose a big pool of prospective buyers, giving you an advantage as a prospective homebuyer.

December is the next best month for buying power

While many people are in the thick of holiday events and get togethers, homebuying may be the furthest thing from their minds. Sellers who need to sell in December will often give buyers extra motivation to consider their homes during the holiday season, and buyers prepared to forgo a cocktail party or two may be rewarded with substantial benefits.

Ringing in the new year with a cheaper home in January

If your New Year’s resolution includes home ownership, January may be a great month to look as well, according to ATTOM’s data. While most people are signing up for gym memberships, focusing on house hunting may save thousands of dollars in home costs instead of inches off your waistline.

Final thoughts about timing a home purchase

The good thing about home prices and interest rates is that they tend to move slowly, giving you time to prepare yourself for the homebuying journey. In order to take advantage of deals to buy a house, you need to have your financial house in the best shape possible.

Not only will you potentially save money with a lower rate or price on the home you buy, but the loan approval process will be much easier if you buy within your means and are able to demonstrate strong credit scores, solid income and plenty of money in the bank.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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