It’s not fun doling out that big mortgage check on a monthly basis. But there are ways to soften the blow with some smart moves to reduce your mortgage bill or to get the best mortgage at the time of buying a home.
“Every loan is a little different, and everybody is a little different,” says Bill Rozek, senior loan officer at Embrace Home Loans in Rockville, Md.
But he explains that most people could save on the biggest expense they have – their mortgage.
Here are some ideas on how to do that:
The biggest problem these days is a lot of people want to buy a home but the inventory is so low, Rozek says. By getting a preapproval, a lender actually pulls your credit report, verifies your income and begins to take preliminary underwriting steps to see what you can actually afford. This puts you in a good bargaining situation with sellers and their real estate agents. It could save you money in the long run by not having to spend too much on a house.
Take blemishes off credit report and raise credit score
Find out what is in your credit report, and change what is wrong. “Everything, the key is credit,” he says. “You have to manage your credit.”
Many times, people have medical collections are the biggest derogatory thing on a report. And most of them are totally inaccurate. And they are quick to put the collections on a report, but once you show it is wrong, they rarely to it themselves and take it off. One of the credit repair companies can do that quickly, he says.
But you need to get a referral from someone else who used them before. Some can be shady. Sometimes, it takes three or four months to raise a credit score. If your credit score is 680, you ca do a few things like , If you can get it up to 760, some lenders feel you walk on water. That gives you a lot of extra things like a lower interest rate.”
Save a bigger downpayment
It might take just a little longer to get the house you want, and you’ll be forced to save more money each month. But by saving more for your downpayment, you can take out a lower loan. You’ll also get a lower interest rate with more money down.
Rozek recently refinanced a couple’s large FHA loan even though the interest rate was 1.5 percent higher than when they took out the loan a few years ago. But they saved $500 a month on a conventional loan because the home value had gone up, and they no longer had to pay the monthly private mortgage insurance (PMI). Also, PMI was not tax deductible because their adjusted gross income was over $100,000. Now, they can deduct all the interest they are paying on the loan.
“Some people will call me about refinancing when they have a 30 year fixed loan and have 25 years left. They want to refinance to 10 or 15 year loan with much higher monthly payments,” he says.
Rozek gets paid the same no matter what program he puts them in. But his biggest concern is that their payment may go up dramatically – it could be $1,000 a month for the 30 year loan, but could go up to $2,000 for a 15 year loan. Sure, they would pay it off early, but what if something happens, like someone gets sick or loses their job? With this in mind, he suggests just making bigger payments every month toward the principal.
Make extra payments
Whenever you get extra money (a bonus, birthday money, sold a motorcycle, etc.), put it toward the principal balance. This will decrease the amount of time you actually are paying the loan and how much interest you’ll get to skip if the principal is paid quicker.
Rozek says to skip the whole bi-monthly mortgages because they are usually done by a third party – not your bank that has the loan. You lose control. If you want to accelerate, take one monthly payment, divide by 12 and pay that extra amount toward the balance every month.
Downsizing their house
“This situation is coming up for my wife and me as the kids move out. It all depends on how much equity you have in your house now,” Rozek says. “People are working longer age-wise. I’m going to be 68.”
So, if someone has a big four-bedroom house but only needs two bedrooms, downsizing could be a great solution. You use the equity in the old house after selling it to pay the new house off or put a big down payment on the new loan with a much smaller monthly payment.
Buyer cheaper insurance
If your homeowner’s insurance is added in to your monthly mortgage payment, you might be able to save some big money by checking out other insurance companies. By getting homeowner’s insurance quotes every year, you might find one that is as much as half of what you are paying now, Rozek says.
“I’ve seen this all the time with my clients. And sometimes, I’ll get my own insurance bill and feel it’s really high. I’ve even called up my insurance agent and told him I have this quote from another agency. He’ll say, Oh, yea, we can match that,” he adds.
Also check your insurance policy. Sometimes, they might be charging you for the land.
“You don’t need that. That happened to me. I moved from Little Rock, Ark., to Washington, D.C., and I hadn’t shopped around, and he charged me for insurance on the land,” Rozek says.
“You have to compare everything apples to apples. Every state has its own intricacies and regulations,” he says.