If you are in the process of getting a home, you are in the middle of a very exciting, and often frustrating, time in your life. A new home, especially if it is your first, is a very big thing. Enjoy the moment but also realize that the decisions that you make right now can have a big impact on your future.
That mortgage loan payment will be the biggest expense that you will have in your budget and you could be paying it for the next 30 years.
There are many ways to keep that payment in check though. Take a look at some of the ways that you can save hundreds of dollars each month on your mortgage.
Get Multiple Insurance Quotes
I personally recommend that you get at least 5 different quotes for home insurance. That number might seem excessive but it is necessary because of the huge diversity in premiums between companies.
Annual premiums can vary by thousands of dollars for the same exact coverage from different companies. It all depends on an insurer’s actual losses in an area. One company might have had big loses in your new home location and might be charging top dollar to new clients. Another might have had very little losses in the same area and is offering rock bottom prices.
Because of the big difference between companies, you need to shop rates with at least 5 companies. Do even more if you have time.
Apply For A Longer Loan
If you are considering a 15 year loan, you can drastically cut your payment by switching to a 30 year loan. It can shave hundreds of dollars off of what you pay every month.
The obvious downside to this is that you will be paying on your loan for a longer period and this paying much more money in interest. Your interest rate will probably go up an extra quarter percent or so.
Still, if you want to make your loan more affordable, stretching the term out is one way to go. 40 year loans are even an option here, but be very careful, you will wind up paying a huge amount in interest.
Buy Some Points
Buying points is the process of buying down your interest rate. You pay one percent of the loan value and your mortgage company cuts the rate by .25 percent. So, if your loan is for 300,000, a point would cost you 3000 dollars.
Obviously, lowering your interest rate is a big deal but that .25 percent might only add up to 20 or 30 dollars a month, depending on the size of your loan. You need to calculate how long it would take to make back the money that you paid down.
It will take almost 6 years to pay back the money that you spent on buying the point. That means that if you live in your home only a few years, buying points is a waste of money. If, however, you will be in your home for longer than 6 years, you will come out ahead by buying points.
Shop For A Cheaper Home
If all else fails, just buy a cheaper house.
When people get approved for a loan, they usually look at the number they are approved for and make that their limit. This could be a huge mistake because it also means that you will be making the maximum mortgage payment that the bank thinks you can afford. It leaves little room for error should you have a decrease in income.
Buying a cheaper home can shave hundreds of dollars off of your monthly bills, not only in the loan payment but also in the escrow payment. A cheaper home means cheaper insurance in many cases.
Improve Your Credit Before Buying
Last but not least, perhaps you could improve your credit to save on that monthly payment. If your credit is not in tip top shop, waiting on your home purchase might be the ticket to get you a lower interest rate.
Pull your credit report from each bureau and take a look. Make sure that there are no mistakes. If there are, dispute them with the bureau. It can take 30 days for them to investigate the matter, so do this at least two months before you plan to apply for a loan.
Next, take a look at those credit card balances. If you are using more than 30 percent of your credit, your score is taking a big hit. Get those balances down before you apply for your loan. You will see a big increase in your score once you get them under 30 percent and another improvement if you can get them under 10 percent.
To Sum Things Up
The decisions that you make right now will have a big impact on your life for years to come. Make sure that you take the time to thoroughly prepare yourself for home ownership. Get your credit in order, shop around for the best rates and insurance and be honest about what you can afford.