Most home buyers are so excited about making their single largest investment in their lives, a home purchase, that the last thing that they think about is seeking tips in saving money on your mortgage. A home buyer will consult with a loan officer and give them their income, credit, asset, and liability information and the loan officer will qualify them on how much house they can afford. The only thing in their minds is how much do I need to close on my home and what is it going to cost me. If the home buyer is currently paying $1,500 in rent and find out that their new housing payment will only be $1,700, they will think “What A Deal. For an extra $200 per month I am a homeowner.” One thing they do not realize is that even a one-dollar savings on their monthly mortgage payment is huge money over the course of an average 30 year fixed rate term mortgage loan. Like anything else, a homeowner needs to try to help himself and try to get the best mortgage possible because nobody will work as hard as the homeowner himself in getting the savings on their mortgage. By thinking outside the box and educating themselves in ways of trying to save on their mortgage, a homeowner can save a substantial sum of money. By exploring creative ways to trim the substantial costs associated with obtaining a mortgage, the homeowner can save tens of thousands of dollars and shave off years off their 30 year fixed rate mortgage loan. On this article on Tips In Saving Money On Your Money, we will explore ways of trimming costs and creative ways of helping you save on your mortgage where at the end of the day, it can save you tens of thousands of dollars by not breaking your savings or changing your lifestyle.
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Boost Your Credit Score and Get Lower Rate
The time to start thinking about saving money on your mortgage is before you enter into a real estate home purchase contract. How long before you decide to purchase a home? The earlier the better. Remember that all lenders, whether it is a mortgage lender or auto finance company or credit card company, view the credit risk with every consumer applying for a loan. Lenders judge a person with a higher credit score to being of less risk and therefore will offer the lowest interest rates. The lower your credit score, the higher your interest rates. Lower credit score borrowers are considered higher risk. With the mortgage world, a lower credit score means a higher possibility that the borrower may foreclose which means that the lender would want to charge a higher mortgage rate due to the risk the lender is taking. If you are planning on becoming a home buyer in the future, make sure that you are credit conscious and start educating yourself on the importance of good credit. You do not have to be a credit guru in order for you to have and maintain good credit and a high credit score. Simple strategies such as making sure that you are always on time with your minimum monthly bills such as credit card bills, auto loans, installment loans, student loans, and other monthly liabilities that report on your credit report will insure that you have a high credit score and strong credit profile. Make sure that you always have several revolving credit tradelines such as credit cards, department store cards, or other types of revolving credit accounts. Never ever close out a credit account with an available credit balance because the credit bureaus view available credit as a positive and it is part of your credit scoring formula. Even though you never use the credit card and may cost you an annual fee, pay that fee and keep that credit trade line open. Remember that many mortgage lenders will have minimum credit trade line requirements in order for you to qualify with them for a mortgage. A credit trade line is a credit account that reports on the credit bureaus with at least a 12-month payment history. Many lenders require a 24-month payment history. The longer the credit account has been seasoned, the better it is for your credit profile. To get the best possible mortgage rate, you need a 740 FICO Credit Score. To qualify for a 3.5% down payment FHA Loan, all you need is a 580 FICO credit score, however, you will be paying a substantially higher mortgage rate with a 580 FICO credit score than a 740 FICO credit score. The savings can add up to tens of thousands of dollars over the course of a 30 year fixed rate mortgage for borrowers with a 740 FICO credit score versus a borrower with a 580 FICO credit score. You can also opt for a USDA loan with low-credit-score mortgage, no down payment and lower interest rates. You can check the USDA loan map to determine if you are eligible.
Get a Sellers Concessions On Home Purchase
All loan programs allow for a seller to offer a seller’s concession to home buyers on a home purchase. What is a seller’s concession and how does it work? The best way to explain seller’s concession is by giving a case scenario and how it works on a typical home purchase.
Let’s say that a seller wants a bottom line price of $100,000 on the sale of their home. FHA will allow up to a 6% sellers concession. The seller of this home can inflate the purchase price by 6% of the $100,000 purchase price, or $106,000, and give the home buyer $6,000 as a seller’s concession to the home buyer to be only used for closing costs. You can use seller’s concessions for closing costs only and not the 3.5% down payment required on a home purchase. Examples of closing costs are one year’s homeowner’s insurance premium that the home buyer needs to purchase and be paid at closing, title charges, recording fees, tax stamps, attorney’s fees, appraisal fees, escrows (2 months property taxes and 2 months’ homeowner’s insurance), and points to buy down the mortgage rates. The seller cannot give a kickback to the home buyer any overages of seller’s concessions. Any seller concession overage needs to go back to the sellers. However, most loan officers will use any seller concession overage in buying discount points to buy down the mortgage rates. Borrowers should think about buying down the mortgage rates with the seller’s concession credit they get from the home seller. A lower mortgage rate can be thousands of dollars of savings over the course of the mortgage loan term.
Get a Homeowners Insurance
Start shopping for homeowner’s insurance. Remember that your insurance premium is based on your credit risk and profile. The higher your credit scores, the lower your insurance premium will be. Interview several insurance agents and compare apples to apples. Many homeowner’s insurance providers offer package deals where if you insure your vehicles and other insurance products with them, they will offer you a volume discount on your household insurance premium which can not only save you on homeowner’s insurance but your auto insurance and other insurance as well. Never just go with the first quote you get. It is very easy to just go with the very first homeowner’s insurance quote you get due to the excitement of becoming a homeowner. But even if the savings is just a few dollars, remember that you will need insurance for many years so that few dollars’ savings can translate into big savings.
Consider Property Taxes Before Putting in an Offer
Property taxes vary from city to city, county to county, and state to state. Property taxes on a 2,500 square foot home can be $2,000 in one county and $8,000 in the bordering county which is just a few miles away on an exact home. Keep in mind that you will always have property taxes due on your home even if you have no mortgage on it. Weigh your options on the area that you are buying your home and how much the property taxes are. Do you need to live in a highly property tax area? And if so, what are the pros and cons? Is it because of the school districts? How much are the property taxes of a comparable property like yours in the same neighborhood? If your home is substantially higher, you can contest your property taxes and get them lowered. If all similar and like properties have similar property taxes, the chances of getting your property taxes are slim to none.
Some mortgage programs require mandatory mortgage insurance premiums. Fannie Mae guidelines requires a mandatory one time upfront FHA mortgage insurance premium of 1.75% of the amount of the FHA Loan which can be rolled into the loan plus an annual 0.85% FHA mortgage insurance premium which is spread out over 12 months for the life of a 30 year FHA insured mortgage loan. Conventional Loans require private mortgage insurance on all Conventional Loan borrowers who put less than 20% down payment. Conventional Loans also offer a one-time upfront private mortgage insurance payment where there is no annual private mortgage insurance if the borrower does a one lump sum payment to purchase private mortgage insurance. VA Loans does not require annual mortgage insurance premium but does require a one-time funding fee which can be rolled into the VA Loan. Borrowers need to consider the costs of mortgage insurance and compare the various mortgage programs that is best suited for them.
Refinancing Your Mortgage
Every time you refinance, there are closing costs associated with each transaction. Most lenders will not let you refinance your mortgage unless there is a net tangible benefit. Many mortgage lenders will offer you a no closing cost refinance mortgage, however, you need to keep in mind that there are no such thing as free closing costs. The borrower ultimately pays. The no closing costs gimmick is just a gimmick where the lender will cover the closing costs on a refinance mortgage transaction but the lender will charge a higher interest rate.
Borrowers who have purchased their homes with a FHA Loan and have seen their homes appreciate in value by 20% or more can refinance their FHA Loan into a Conventional Loan. This will eliminate the FHA annual mortgage insurance premium of 0.85% altogether because there is no private mortgage insurance required with a conventional loan as long as the homeowner has 20% or more equity. Keep in mind if you are planning on refinancing that you try to get your credit scores as high as possible way beforehand so you can get the best rates and terms.
Author Bio: Peter Bieda is an experienced writer on topics relating to mortgage, real estate and apartment financing, he also writes on trends that make you your business more successful online.