Pay A Bigger Down Payment
The more that you pay down on your loan, the less your payment will be because of the reduction in interest. In addition, if you meet the magic 20% down level, you get to eliminate PMI. Private Mortgage Insurance is a huge expense on a loan and eliminating it can save you hundreds of dollars a month. In addition, when you pay 20% or more on a loan, you often qualify for much better interest rates, further saving you money.
Hint: If coming up with the cash to do this is difficult, consider an 80-10-10 loan. This would involve a loan for 80% of the property, 10% down from you and a loan to cover the other 10% of the home. Note that the second smaller loan will be of higher interest but it could save you money over paying PMI.
Negotiate Better Terms
Do not be afraid to ask for a better deal. If you just take what you are offered, you never know if you could have received a better rate. Even if you do not get a better rate, you might be able to get some fees covered by the lender.
When you buy points, you are purchasing a lower interest rate. The typical cost of a point is 1% of the loan amount and that point gets you a quarter of one percent in interest reduction. This can add up to quite a bit of savings, if you keep the loan for a long time. If you intend to sell the home within a few years, it is not worth buying points because it will take several years to break even on the money that you put down.
Take a 200,000 mortgage, for example, at 4 percent for 30 years. Buying a point would cost 1% of that or 2000 dollars. For that price, you get a .25 percent reduction in your rate which would save you 29 dollars a month. It would take you 69 months or 5 years and 9 months to break even on the point purchase. If you plan on staying longer, it makes sense to buy the point.
Work On Your Credit
If you want to get that low rate, you have to have good credit. Luckily, good credit is no mystery, you just have to follow a few steps and be disciplined. Here are some easy ways to drastically improve your credit score.
Pay Down Balances
Having your balances below 30% will drastically improve your credit rating. If a home is in your future, set a budget that will get your balances as close to this level as possible.
Paying down your balances is not the only way to get your level below 30%, you could also increase your credit limit. Call your credit card companies and ask for an increase. Since you already have a relationship, it shouldn’t even cost you a credit inquiry.
Pay Bills On Time
A huge portion of your credit rating is your bill payment history. You need to make your payments on time if you want the best rating so if a new home is on your mind, get disciplined.
Dispute Negative Information
If there is inaccurate information on your report, you need to dispute it at least three months before you plan on applying for a mortgage. If negative information is found and you dispute it, the bureau has 30 days to complete an investigation. If the creditor can not prove that the information is correct, it must be removed. This takes time, so give yourself at least a few months.
Government Loan Programs
Government loan programs might be just the ticket to save money on your mortgage if you qualify. If you are a veteran, for example, a VA loan is a no brainer. It will eliminate the need for mortgage insurance and often comes with lower interest rates than other loans.
USDA loans are also an option if you qualify. These loans require you to live in a rural area but you might be surprised at just how many areas are considered rural. About 97% of the country. If you qualify for a USDA loan, your mortgage insurance will be about a third of that of an FHA loan.
Look Into An ARM
An Adjustable Rate Mortgage will usually have a lower interest rate for the first few years of the loan. After this time, it will change based on the market rate. If you plan on being in your home only a few years, this might be an option you can look into to save money.
An ARM will come with a locked in rate for the first few years. It could be 2 years, 3 years or even 5 years. The rate will typically be lower than a fixed rate mortgage. After that time you could get a floating rate or one that adjusts every year.
If you plan on being in your home only a short time, an ARM is a real possibility to save you money.
Buy A Less Expensive Home
Buying a less expensive home is not the most glamorous choice but it sure does work. Not only will you save money on principal and interest payments, but it also helps you come up with a 20% down payment. If you can come up with 20%, you can cut PMI from the loan.
So, consider cutting your purchase price by 20,000 or so and see what is available. If the homes in your new price range do not have the same amenities, remember, you can always make improvements later.
Cant bear to get a cheaper house? Be a shrewder negotiator. Wait around for the deal and keep making lowball offers. You might just come up with a great deal and if you do, you would also get instant equity.
Another tactic is to buy a house during the offseason. The inventory of homes will be much reduced but there will also be fewer buyers. This means that you might be able to score a better deal. Less demand often equals lower prices.
Shop Around For Homeowners Insurance
Rates can very quite a bit for homeowners insurance. It is not uncommon for some companies rates to be three times the rate of others. Call at least three insurance companies for a quote. The range might surprise you.
Another way to save money on homeowners is to reduce the risk for the company. You can do this by choosing your house wisely. Newer homes will get better rates because they are in better condition and less risk. Wiring is new and up to current codes and roofs are in great condition. A home with an alarm system or fire sprinkler system might also save you money. Consult with your agent for items that could reduce your premium.
Finally, consider a larger deductible. The difference between a 1 percent and 2 percent deductible can be huge.
Once you are in your home, you need to make sure that you file for a homestead exemption if it is available to you. It will shield a portion of your home from some or all of your property taxes. It can save you $200 to $300 a year in taxes.
Besides homestead exemptions, you may have more tax exemptions available to you. Some possibilities include a those for disabled persons, widows, senior citizens and disabled veterans.