Drive That Loan Payment Down
Who wouldn’t like to have a cheaper mortgage payment? You can have it but it will take a bit of work on your part. Take a look at a few of the best ways to drive that mortgage payment down.
1) Shop Your Home Owners Insurance
Whether you are refinancing your loan or purchasing a new home, it is a very good idea to shop your home owners insurance. Do not assume that your current agent will get you the best price. The price differences between companies will probably astound you.
Case in point, when I purchased a home 3 years ago, the rates for insurance varied by as much as 300 percent. I found quotes for nearly FOUR thousand dollars a year and ultimately settled on an offer for 1300 dollars a year. That is a huge difference and that larger premium could have cost me more than 200 dollars more a month.
When shopping for home owners insurance, call 3 different insurance agencies at a minimum. Ideally, you should call as many as you can. It took me 6 to find my best deal.
Additionally, you should play with insurance deductibles. There is often a huge difference between a 1 percent deductible and a 2 percent one. Moving up to a higher deductible can save you a considerable amount of money on your premium but if you have a claim, it can cost you. On a 300,000 dollar house, in this example, it is the difference between a 3000 dollar and a 6000 dollar deductible.
2) Go With A Longer Term
You might get a slightly cheaper rate on a 15 year mortgage but it will put a hit on your monthly budget.
On a 300,000 dollar house, the difference in your payment would be about 700 dollars. That even takes into account the lower interest rate. Sure, in the end, you will pay less interest with a 15 year note but it makes the payment much harder to bear.
Looking to knock even more off of your monthly bill, look into a 40 year mortgage. Yes, they exist and they can shave another 100 to 150 dollars off of your monthly bill. You will pay a higher rate however and pay considerably more interest over the course of the loan, so keep that in mind
3) Buy A Cheaper House
We are all guilty of wanting to get the most that we can but with a home, wanting more can be very costly.
A mortgage company may approve you for 400,000 dollars for a home, but that does not mean that it is in your best interest to purchase the most expensive home that you can.
The difference in mortgage payment between a 400,000 dollar home and a 300,000 dollar home is almost FIVE hundred dollars a month. That does not even account for higher home owners insurance premium on the costlier home and the higher cost of utilities and maintenance on the presumably larger home.
4) Put More Money Down
These days, you can get into a home with nothing down. Unless you are getting a VA loan however, this comes with a major drawback, mortgage insurance. Depending on the size of the loan, mortgage insurance can add thousands to the up front cost and hundreds of dollars to the monthly payment.
To avoid mortgage insurance, you have two options. You can put 20 percent down or you can get an 80-10-10 mortgage.
If you can swing it, 20 percent down is the ideal solution. You get a home with no mortgage insurance and you get the simplicity of having a single loan.
If you can only come up with 10 percent down, an 80-10-10 is still a good option albeit a more complicated one. It involves putting 10 percent down, getting a loan for 80 percent of the home and an additional loan for the remaining 10 percent. The smaller loan is generally for a shorter term than the larger loan.
5) Improve Your Credit
Last but not least, we have your credit score. The best rates obviously go to those with the best credit rating.
The process of readying your credit for a home purchase should happen at least six full months prior to the purchase of your home.
You should pay down credit card balances as much as possible. You have probably heard that you get the best credit rating if you get your balance below 30 percent. This is true, but you get even more of a boost if you can get them lower than 10 percent.
In addition, you should apply for no new credit before a home purchase. Inquiries can hurt your score. It might be only a point or two but every point counts. New credit can also decrease the average age of your credit and that can further decrease your score.
Finally, check out Experian boost. It takes into account your good bill payment from utilities and the like and can raise your credit by up to twenty points.
Wrapping Up
So there you have it, 5 ways that you can lower your mortgage payment. Put several of them together and you are potentially going to be able to save hundreds of dollars a month.
There is obviously more to a low mortgage payment than just a credit score. Take everything into account, do your home work and get a payment that makes your budget happy.
