5 Ways to Reduce Your Out-of-Pocket Cash When Purchasing a Home

Buying a home is expensive, but having enough cash to make the purchase a reality can often seem impossible. Keep reading to uncover five budget-friendly ways to reduce your out-of-pocket cash when buying a home. Using these five money-saving tips could be just what you need to accelerate the purchase of your next house.

(1) Incorporate a Small Down Payment

Committing to a small down payment instantly reduces the out-of-pocket cash you’ll need for your next home purchase. The traditional down payment for a conventional loan is 20 percent of the home’s purchase price. You can often put down a much smaller percentage, but will have to pay an added dollar amount for private mortgage insurance every month. Depending on the type of mortgage loan you choose and your qualifications, you can even put down zero dollars as a mortgage down payment.

(2) Negotiate Closing Cost Obligations

Closing costs can add up to a significant dollar amount when you’re buying a new house. According to information on The Mortgage Reports website, a home buyer should expect to pay anywhere from 2 to 5 percent of the home’s purchase price in closing costs. For example, on a $200,000 home a buyer can count on paying somewhere between $4,000 and $10,000 in closing costs. However, there is a way to reduce your out-of-pocket cash for these charges. You can do this by negotiating with the home seller to pay a specific dollar amount toward your closing expenses. The seller’s designated dollar amount to pay for your closing costs is subtracted from the net proceeds they are entitled to from their home sale.

(3) Buy Late in the Calendar Year

As a home buyer, you are typically responsible for home expense items such as real estate taxes and homeowner’s association fees, from the day you purchase your new home until the end of the year. Consequently, it may be wise to wait until months late in the calendar year, like November or December, to buy your next home. The real estate taxes and HOA fees are typically prorated between the seller and buyer, so the less time you own a new home until the end of the year, the less cash you’ll need at closing to pay those expenses. Also, the number of home sales often decreases during those months, which may mean a price drop from the original asking price.

(4) Roll Renovation Costs into Your Mortgage Loan

If you’re wanting to buy a home that needs renovating, you can save yourself some out-of-pocket cash by rolling those costs into specific types of mortgage loans. According to information on the Budgeting Money section of The Nest website, The Federal Housing Administration’s 203(k) loan program was designed to help home buyers with such a need. There are certain qualifications you must meet for the 203(k)-mortgage loan. The FHA also allows you to delay your new mortgage payment, including renovation costs, for six months if you can’t inhabit the home until it’s been renovated. However, the principal, interest, taxes, and insurance for those six months will also be rolled into your new mortgage loan upon closing.

(5) Be Financially Resourceful

Being financially resourceful can save you a substantial amount of out-of-pocket cash when buying a new home. For example, you might ask friends or family if they would be willing to loan you the money for a down payment on your home. Work out the loan details, and don’t slack on repaying the loan just because they’re relatives or close friends. Also, check out interest-free financing or zero-interest credit cards to buy major home-related items, such as kitchen appliances and furniture pieces. These financial incentives allow you to buy the items you need without any immediate out-of-pocket cash required.

After reading the information in this article, you’ve learned how you can purchase a new home without depleting your cash reserves. Many money factors, such as a small down payment, being financially resourceful, and lower closing costs, can reduce the out-of-pocket cash you need to buy your new house. Put these five money-saving tips into practice and you may be buying your new home very soon.