Here are a few ways you can pay less for your new home.
Clear Up Your Credit
No one should ever buy a house impulsively, but planning far ahead can give you the time you need to get a better deal from your lender. Specifically, spend a year or more clearing up your credit profile by settling old debts and reviewing your credit report for errors.
You should also use this time to build a stable payment history. Even one late payment can adversely affect your credit score so make every payment on time.
No matter where your credit score currently sits, there’s always room for improvement, and raising it just a few points can help you pay significantly less interest on your mortgage.
Don’t Get Stuck With PMI Premiums
Private mortgage insurance is coverage that’s intended to protect lenders when granting mortgages to high-risk home buyers.
This type of insurance protects lenders who may default on their mortgages, which is why it’s only applied in cases in which the lender accepts a down payment that’s lower than standard.
If you take the time to save up the traditional 20% down payment amount, you can avoid getting stuck with PMI premiums.
Buyers are typically charged up to 1% of the amount owed on the home. If you buy a $140,000 home, your PMI premium in the first year will be up to $1,400.
Take Advantage of Government Programs
There are many government programs that are designed to help more people buy homes, so it may be beneficial to look for a program for which you will qualify. If you’re a military veteran, look for qualified VA loan homes for sale.
Obtaining a home loan through a VA program will help you get a zero-down loan, lower closing costs, and very low-interest rates. Even if you’re not a veteran, there are plenty of government programs that offer favorable deals.
For example, the U.S. Department of Agriculture offers zero-down USDA loans for people interested in buying homes in rural areas. Through this program, you’ll pay interest that’s lower than the market rate, and you’ll pay less for mortgage insurance.
Put More Money Down
While you should plan on putting a minimum of 20% down on your home, you can put more down to save on your mortgage. Essentially, paying more upfront means you’ll have to borrow less.
Lenders are willing to offer better rates to buyers who offer larger down payments because it shows that the buyer is more invested in successfully paying off their loan. As an added benefit, putting more money down can also help you build equity faster.
Pay Mortgage Points
Mortgage points are used to help buyers lower their interest rates by paying upfront fees to the lender. As the buyer, you can buy one percentage point by paying 1% of your total loan amount at closing.
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For example, if you pay two points on your $100,000 mortgage, you’ll have to pay an additional $2,000 at closing. In exchange, your interest rate will drop by two points.
If your initial rate was 4.5%, paying down your interest by buying points will bring your interest down to 4.25%. It’s also important to remember that buying points can save on your taxes, so be sure to tell your tax attorney or accountant that you paid points on your home.
The money you use to buy points should be paid in addition to your 20% down payment. Otherwise, you’ll be required to buy private mortgage insurance, and you won’t be getting the savings you expected.
You should also work with a real estate agent when you’re ready to start shopping for your home. In addition to taking advantage of their expertise and knowledge of the local market, you can also find out more ways to save by working with an agent.
Consulting an agent throughout the buying process won’t cost you anything out of pocket, yet it will be one of the most valuable home buying services you can use.
Image Credit: home loan advice by envato.com
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