As a reminder, I’m writing a 3 part series on budget busters. Crown Financial Ministries defines budget busters as “areas that can result in financial disaster.” In the introductory article, we identified the 3 largest spending areas of the budget as food, automobiles and housing. In this final article of the series, we’re going to look at 10 strategies for saving money and controlling spending for the housing budget category.
Save money for annual landscaping and yard supplies
If you’re a home owner, or considering to be one in the future, you’ll definitely want to take care of your property by maintaining the landscaping. Saving money for such items as plants, shrubbery, flowers, fertilizer, bug spray, etc. is a good idea. It’s typically a good idea to make this type of savings a part of a freedom savings account to avoid the surprised expense each season.
Finance 15 years
You can save a tremendous amount of money by financing a home mortgage for 15 years versus 30 years. While it isn’t common, a 15 year mortgage is attainable if you save money for a 20% down payment and keep all of your housing expenses (including mortgage) within in the suggested 38% of Net Spendable Income (NSI) as Crown suggests. I do recognize this isn’t easy. Those who have been able to do it have been patient with home buying and rented for a number of years to save.
Have a plan to pay off your mortgage
It’s important to remember a mortgage is still debt. Some might argue the tax deductions for mortgage interest are reason enough to have a mortgage indefinitely. However, the tax breaks you receive don’t outweigh the monthly savings of no mortgage payment or the sense of relief you have from being out of debt. Just make sure you don’t jump ahead of other important financial goals to start paying of your mortgage early. I see this occur often. The mortgage is one of the final stages on the Money Map and shouldn’t be tackled until you’re debt free, funded an emergency savings account, started saving for retirement, etc.
Save for a down payment
Don’t rush out and purchase a house without a significant down payment. It may take several years to save, but it’s best to enter into a mortgage creating plenty of equity between your loan amount and the amount the house is worth, or appraised for. A 20% down payment is a good amount since it will allow you to avoid PMI (private mortgage insurance) and have at least an 80% loan to value (LTV) ratio.
Perform maintenance yourself
Most of the basic jobs around a house can be do-it-yourself jobs with a little bit of self-learning. Beyond big jobs in plumbing and electric, you can do a number of jobs found in the Home Depot 1-2-3 Home Improvement book. This book has saved me a lot of heartache. I’ve repaired toilets, patched holes and painted rooms. Hiring a handy man for some of these jobs can be expensive. Try to learn about a repair and do-it-yourself before you pay someone else. Little repairs do add up and take money from other financial goals.
Don’t finance closing costs or use a second mortgage as a down payment
I recently read a Crown Financial Ministries article that recommends not financing closing costs or using a second mortgage for a down payment. Financing closing costs and using a second mortgage as down payments makes the loan more risky since there isn’t as much equity between the total debt and the appraised value of the home. Similar to not saving for an adequate down payment, both of these moves create a higher LTV ratio. Ideally, you want it lower. The mortgage crisis was created partly because people had high LTV ratios. In some cases, 100% of the value of the home was financed. Higher LTV’s create more chance to get upside down on your loan.
Shop around for the best loan (interest rate)
Be careful when shopping for loans and in considering closing costs. Many realtors will recommend lenders, but nothing is free. Some higher fees can be passed off to realtors as commissions or incentive to bring business to the lender. It’s better to ask friends for recommended lenders and request Good Faith Estimates from at least three of them. Compare the closing costs for the same loans with each and determine which one is more affordable. Never accept the first estimate and interest rate quote. Remember to compare and negotiate affordable fees.
Once you’re in your house, bundling different services can save a lot of money. Personally, we bundle our satellite TV, internet and phone together which helps us receive discounts from our provider. Paying for each of these services separately and from different vendors can increase the costs. It’s best to shop around for the best bundled service offers. Keep in mind, most major providers of phones, such as AT&T, offer such packages.
Do you need a house phone?
Speaking of phone, do you really need a house phone? We have retained a house phone for local calls only because of our security system. It runs off of a land line. I haven’t researched if it’s possible to connect it to a mobile phone. It may pay to do away with a land line if you don’t have security system, or don’t have another good reason why a land line is needed. For many people a mobile phone meets all of their phone related needs.
Annual review of your property tax appraisal
One of the money saving strategies I’ve been successful with is protesting my property appraisal for tax purposes. The county in our area reviews each property and appraises it. Property taxes are based on this appraised value. If you notice your appraisal jumping up a lot, or other properties comparable in size not appraised for as much, you may want to consider requesting a review or protesting your appraised amount. In our case, an appraiser visited our home and found a mistake which saved us considerable money on our taxes.
These strategies are far from being a complete list. Perhaps I’ll continue to add to this post as my experience with home ownership grows. However, as you can see, there is plenty of ways to save and control spending whether you’re buying a house or already are a home owner.
What do you think of these money making strategies and do you have any other ideas you can share to save money and control spending for the housing budget category?