Ready to check off all the items on your home wish list? By keeping an open mind and being ready to make smart compromises, you could achieve significant savings. Here are three big decisions you’ll need to make:
1. New vs. existing home
A newly built house can be more energy-efficient than an existing one, reducing your utility bill. And new builds also often allow for more personalization—think floor patterns, wall colors, fixtures, etc. But starting from the foundation can also bring a lot of unknowns, including additional hits to your budget.
Will material costs increase? What if you want to make a design change? Change orders can add significantly to your final home price.
Working with a tighter budget? Purchasing an existing home—with fewer unknowns—will give you a better handle on your upfront costs.
2. Fixed- vs. adjustable-rate mortgage
The most important thing to consider when deciding between a fixed- or adjustable-rate mortgageDisclosure 1 is how much money you feel comfortable borrowing.
A fixed-rate mortgage maintains the same interest rate throughout the life of the loan. This allows you to budget more accurately. If you’re confident that you’ll be staying in the home for more than five years, a fixed-rate mortgage might be the way to go.
An adjustable-rate mortgage (ARM) has a fixed rate for a set period of time and then adjusts with the market. So long-term budgeting can be a challenge.
But the initial-term payment for an ARM will likely be lower than for a fixed-rate mortgage. An ARM may be your best choice if you don’t plan to stay in the home as long as the fixed-rate period—or if you think your income will increase before the interest rate adjusts.
3. Location vs. everything else
Have you found a nice, but pricey, house in your dream neighborhood? Can you get a better deal in an acceptable nearby neighborhood? Are the potential savings worth it?
That depends on your priorities.
A home’s school district can affect its resale value. But does that matter more to you than the size of the house? If you need four bedrooms, you might prioritize the size of the house over the school district.
Assess your needs vs. your wants. By being flexible and rethinking your homebuying wish list, you’ll be better positioned to find a home you love at a price that’s right for you.