Open the Door to Mortgage Savings By Doing This

Last updated: March 20, 2017

Perhaps one of the biggest expenses that most homeowners face is their mortgage. Fortunately, however, there are ways to save on your monthly mortgage payments! Whether you already have a mortgage or are considering applying for your first home loan, here are some tips and tricks to help you to save more.

Saving Money on Your First Home Loan

1. Buy a Smaller Home Than You Can Afford

It sounds like a no-brainer, but just because you can afford a monthly payment of $1,200, doesn’t mean that you have to afford a monthly payment of $1,200. The same thing goes for pre-approval. Just because you have been pre-approved for a mortgage of a certain amount doesn’t mean that you have to use that entire amount when purchasing your home!

When shopping for your first home, buy what you need rather than what you can afford. For example, if you can afford a five-bedroom home but have no plans of having a large family, buy a smaller home that suits your needs. This will create smaller monthly payments for you and allow you to make more frequent payments and pay your mortgage off sooner.

2. Make a Larger Down Payment

If you have the means, when purchasing your first home, make a larger down payment. Don’t overstretch your budget, but if you can comfortably afford a 25% down payment, make it! A larger down payment will not only reduce your monthly mortgage payments, but it will also get you a lower interest rate on those monthly payments.

A larger down payment up front will save you more money in the long run.

3. Negotiate the Price of Your Home

If you are in a position where it is possible, negotiate the price of your home. This will require a little research on your part, but the savings will be worth it.

  • Look at the average home price around the area of your potential new home. This knowledge will give you more bargaining power if a home is overpriced.
  • Understand the seller’s motivation for selling. A seller who is selling their home due to financial need is going to be more accepting of a lower (but reasonable) offer. A seller whose home has been on the market for two years is also going to be more accepting of a lower offer. A seller who is financially stable but in no rush to sell, however, is less likely to negotiate.
  • Ask the seller to concede. If the seller won’t negotiate the price, try to roll other costs into the purchase. For example, ask the seller to cover closing costs or to replace the roof of the home.

4. Know Your Credit Before You Shop

Knowing the status of your credit will put you in the position to get the best rate on your mortgage. If you know that your credit is poor, consider postponing your home purchase while you try to repair some of that credit by addressing debts. If you know that your credit is good, however, know that you can shop around with lenders for better rates. Use your good credit to your advantage!

Keep in mind that while you may be excited to buy your first home, your mortgage can be a 30-year commitment. Making that 30-year commitment with poor credit will result in high-interest rates and unnecessary expense.

5. Look into an FHA Loan

If you are coming up short when it comes to a down payment, look into an FHA loan. Depending on your credit score at the time of application, approved FHA borrowers may pay as little as 3.5% on their home as a down payment. Even with poor credit, FHA borrowers can obtain a mortgage with as little as a 10% down payment.

Saving Money with Your Existing Mortgage

1. Add Something Extra to Your Monthly Payments

You can save money on your mortgage by adding a little something extra to your monthly mortgage payments whenever possible. Whether you add $5 this month, $100 next month, and $1,000 the month after that, those extra payments go towards the principal of your mortgage.  Over time those additional payments will add up and result in paying your mortgage for a shorter period of time.

2. Address Your Private Mortgage Insurance

If you made less than a 20% down payment when you purchased your home, you were more than likely forced to purchase private mortgage insurance. If you had to purchase private mortgage insurance but have since paid enough on your mortgage to bring your balance under 80% of the home’s value petition your lender to cancel your PMI.

3. Relocate Savings

Don’t ever funnel all of your savings into your mortgage, but if you have a comfortable cushion of savings for retirement, consider relocating a portion of that to your mortgage payment. Paying off a lump sum in this way will reduce the interest you pay on your mortgage in the long run and wind up saving you more money.

Just remember that if you do use your savings, you need to funnel that money back into your savings account as soon as possible so you aren’t short come retirement!

4. Make Extra Payments on Your Mortgage When Possible

When you are able, for example, if you receive a windfall or a tax refund, make an extra payment on your mortgage. Making a full extra payment will deduct that full amount from your mortgage principal and reduce the length of your mortgage and the interest you pay over time.

5. Refinance Your Existing Mortgage

If, at the time of your home purchase, your credit was poor or your down payment was low, consider refinancing. Refinancing may or may not be possible depending on the age or your mortgage, your credit, and the current financial climate, but if it is possible, it can drop your interest rate dramatically. Less interest paid means less money wasted!