Buying a home, whether it’s your first time or not, usually ends up turning into a particularly stressful episode in your life. Besides the nerve-wracking process of tracking one down that ticks off most of your needs and wants, there’s dealing with finding and setting up a mortgage that won’t saddle you with a high interest rate or drown you in hefty payments each month.
And even if you can safely and sanely navigate the choppy mortgage waters and come out with a manageable one, changes in the economy, your finances, or falling victim to other life-altering events can make the once-suitable monthly payment seem unsustainable. So no matter if you’re just shopping around for a lender or already have a mortgage, take a look at our tips to get the most our of your monthly commitment to home ownership. And whatever you’re paying for your dream house, remember: Here are 30 Home Decorations No One Over 30 Should Own.
Make a big down payment
This is probably the simplest way to reduce your monthly amount besides paying straight up cash to your bank. If you don’t have at least 20% to put down, chances are you will get saddled with a mortgage insurance payment. For some loans, if you put down less than 10%, you will have to keep that insurance for the life of the loan. And for more great money advice, here are the 10 Best Budgeting Apps to Boost Your Savings.
When planning for a future where you’d like to pay less—like when your kid goes to college or you want to retire early—it makes sense to pay more now to reduce your principal. Ask you lender to create a 26 bi-weekly payments, and that extra bit will soon cut your loan down and help you cut down on the mortgage insurance. And if you’re struggling to save more, here are 40 Ways to Save 40 Percent of Your Paycheck.
Use windfalls to pay it down
Earmark any expected or unexpected infusions of cash—tax returns, inheritances, bonuses—for paying more off. Even though it’s not going to make your payments smaller, it will lower your loan to value (LTV), which will get you closer unsaddling yourself of mortgage insurance. Trust me: It’s one of the 52 Ways to Be Smarter with Money in 2018.
Pay insurance at closing
If you weren’t able to muster up 20% to put down on your dream home, offer to take care of your private mortgage insurance (PMI) when you close. Even if you don’t quite have enough for a big down payment, you may have enough to get rid of the PMI, which can save you thousands in the long run. It typically adds on from 0.50% to up to 0.85% to your payment each month.
Shop around for insurance
You may be happy with your insurance company and agent, but if you don’t shop around for better rates when making a big purchase you could be losing out on a big savings. Check out online homeowner insurance comparison sites like SelectQuote and QuoteWizard for the best rate and you may be able to used that extra money to pay down the mortgage.
Consider an adjustable rate mortgage
Loans like adjustable rate mortgages can help you maximize your buying power and get more house than a traditional fixed-rate loan. The only problem is even though they set you up with lower payments, over the long run they could end up costing more, so these are best if you think you’ll sell or refinance within a short time.
Budget to pay off mortgage insurance
This pesky fee can hang around for a long time if you weren’t able to put down 20% when you bought the house or pay for the insurance all at once at closing. Focus on creating a solid budget and funneling extra cash from cutting down on spending into getting rid of the PMI as soon as possible.
Review your property tax
The real estate market is always fluctuating and those ups and downs in housing prices means many homes may be overvalued down at the tax office. Contact your local tax assessor and figure out what you need to do to get a reassessment. Beware, though, that if you’ve done any remodeling, that could cause a jump in your home’s appraisal.
Remodel to boost value
If you have areas in the home that are run-down or sorely need to be updated, consider doing some significant remodeling to increase the home’s value and the LTV rate to 80% or lower. The usual suspects include upgrading kitchens and bathrooms or adding on extra square-footage. Check with local realtors to find out what brings the biggest increase in your neighborhood.
Increase your credit rating
When planning to buy, spend some time engaging in strategies to get your credit rating in great shape—a high score means a lower rate for you. Things to check off your list to quickly change your rating include paying down credit card debt, clearing any collection accounts or late payments, and get added as an authorized user to a friend or family member that has a long and solid credit history.
Refinance your rate
This is of course the go-to way to get a lower mortgage payment if you have already been in the house for awhile, but it means you will have to pay some fees, so use an online calculator to figure out your break-even point. You may be able to save a decent amount in monthly payments and score a better interest rate, so it’s worth a try, especially if your credit score is higher than when your first got the loan.
Pay more each month
When you have the extra cash, try to add a little bit on top of what your base payment is. This way you can help whittle down the principle amount you were loaned a lot faster, making deeper cuts into the inevitable accrual of interest. This will also help you get a lower rate in the future if you decide to recast or refinance your mortgage.
Get an interest-only mortgage
One option to get a lower rate at the time of purchase is to ask for an interest-only (I/O) loan. This means you enter into a two-phase loan where the first portion has you paying the interest and, then, in the second part, you pay off the principal plus interest. You will get low initial payments, but they will ramp up once after either a five- or 10-year period.
Search for the best rate
Don’t just agree to the first rate you are offered, mount and exhaustive search online to find the best one for you and your situation. There are lots of different options and scenarios that can result in you getting a low interest rate that you can explore with online mortgage tools like the one at NerdWallet or from the Consumer Financial Protection Bureau.
Not a lot of people know—unless you’ve gotten a mortgage before—that you can actually purchase discount points when signing up for a home loan. If you have some spare cash you can usually buy up to three points with each point reducing your interest rate between 0.125 to 0.25% over the length of the mortgage.
Cut down other debt
This strategy may not actually lower the amount you pay on your mortgage each month, but it’s a great way to free up money so the payment doesn’t seem like such a big hit. Plus, paying down other household debt is a makes good financial sense all around. Hit credit card debt hard first, which will raise your credit score and allow your more leverage if you try to refinance, then focus on car payments and other income sappers.
Recast your loan
Instead of refinancing, you can recast or reamoritize your mortgage if you really need to drop your monthly payment. What this means is that you can stretch the loan terms back out to the original length of time—if you’ve paid off about 10-years worth of debt on a 30-year loan, the lender can reset it back to the 30 years, dropping your payment.
Check on federal programs
There are a few government programs that can help you with loan modifications like the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP), but these are mostly for people who have hit hard times and need some assistance paying their mortgage. You usually have to be current on payments and in some sort of financial hardship for these to work for you.
Rent out a room
Not the most ideal situation, but if you really, really need to drop that payment, consider renting out a room, or even remodeling an existing space, like a basement, to create a separate apartment for a renter to live in. Depending on your location, it could add up to reducing your payment by a significant amount, or even dropping it to zero.
Question the fees
When speaking with a mortgage lender about a loan—and assuming you have good credit—ask them what closing costs are able to be negotiated and if any can be waived. But be aware, if they are open to haggling over costs or and dropping fees, they may be jacking up the interest rate a bit so they won’t lose any money in the long run. Remember: it’s OK to question all of the fees and ask for a break on the costs.
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