Now more than ever, prospective home buyers are looking to cut costs and save money without cutting corners — or giving up on that cute little corner lot. It isn’t always easy. Not that home buying has ever been a particularly smooth and forgiving process. But with a tight credit market and concerns about when interest rates will rise, buyers are looking for ways to find and finance a home with as little pain as possible.
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An important step is to take, well, one step at a time. This is one of the most significant investments you’ll ever make, so hoping for some mad dash from start to finish can ultimately trigger major headaches for years and even decades to come.
There are a few paths to consider that can ultimately help you save money on your mortgage. Carving out a way to save just a handful of dollars every week or month on your mortgage can have a huge impact as your loan term runs its course.
Here are a few things to keep in mind when trying to save money on your mortgage:
Credit and credit scores remain a mystery to far too many prospective homeowners. And that’s even scarier when you consider that about a quarter of all credit reports have errors and inaccuracies that can derail a home loan.
Having a good credit score will play a key role in your final interest rate. Go over your credit report with a fine tooth comb and be sure to contest any errors or mistakes you find. Allowing major ones to linger can lead to a higher rate and wind up costing you more money in the long run. Each of the three major credit bureaus have a process for disputing inaccurate information.
Really think about how much mortgage you can afford and strive to land the shortest mortgage term possible. You’re going to spend a ton of money on interest in the first decade or so of homeownership – it’ll take years for you to start paying down the principal. If you’re making solid money now and have the opportunity to opt for a 20- or 15-year term, seriously consider doing so. If you were to finance $80,000 with a 7-percent interest rate, getting a 20-year mortgage instead of a 30-year would save you more than $40,000.
There are a couple ways to get a loan without putting any money down, although they’re the exception for most buyers. Veterans, active duty service members and qualifying spouses who meet VA guidelines can obtain a loan backed by the Department of Veterans Affairs. Rural homebuyers (and even suburban ones) may also be able to qualify for a USDA loan, which also comes with no down payment or private mortgage insurance.
Otherwise, expect to come in with money down – at least 3.5 percent for an FHA loan and at least 20 percent for a conventional to avoid PMI. If you’ve already got a solid down payment, it may be best to avoid government-backed loans and go the conventional route to probably get a better rate.
But it’s a good idea to determine exactly what loan program(s) you qualify for. You can save a lot of money if you’re living in the right area or if you served our nation.
This one might hurt in the short term but can do wonders later down the road. If you can scrape together the extra dollars, pay more on your mortgage each month. Just an extra $100 toward your principal every month can cut substantial money off your mortgage — about $20,000 on a 20-year mortgage with 7 percent interest and a $100,000 note. Be sure to make it clear that you want this additional payment to go solely toward the principal and not to reducing interest.
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