6 Surprisingly Little-Known Tips to Make Substantial Savings on Mortgage Loans

    Buying a home for the first time is becoming more challenging in recent years. Despite interest rates on mortgages dropping to an all-time low, homebuyers must deal with the lower availability of affordable housing options, high property prices, and loads of student debts. It’s not surprising that the average homebuyer is now around 33 years old as reported by statistics gathered by Bloomberg. However, most people are unaware of the many mortgage loan programs that are now available. Availing of these options can help lower down payments, which is why buying a house is actually a lot easier with the right know how. If you’ve been thinking of investing in a house, don’t let the market conditions discourage you. Take a look at these simple strategies that can bring down the down payment and cost of your first home.

    1. Take the Critical First Step by Getting Pre-Approval for a Housing Loan

    Having made the decision to invest, the first crucial step is getting pre-approved for the loan. Each pre-approval evaluation is valid for around three months and gives you an overview of the actual amount you can comfortably spend. Potential lenders of mortgage loans, take into account your income and monthly expenses and give an estimate of the value of the home you can afford. They’ll also consider the debts you owe such as personal loans and credit card balances, among others. With this figure in hand, you can begin scouting around for the house that meets your requirements.

    2. Work Out How to Arrange the Down Payment

    Down payment is the initial deposit you’ll make toward the house. Depending on the price of the property, you’ll pay anywhere from 5% to 20% of the value and finance the remaining amount. For most homebuyers, this initial down payment is hard to collect. But, it may interest you to know that different states have down payment assistance programs where they offer government grants to first-time buyers. Check out the official website of the National Council of State Housing Agencies and you might just find that you qualify for a grant that can help cover a part of the down payment and closing costs.

     3. Search Around for Mortgages with the Lowest Rates of Interest 

    Chances are that the first bank or home loan provider you contact rejects your application. Or, offers rates of interest that are too high. The reasons can be varied like, for instance, a low credit score or a high debt-to-income ratio. Take your time searching around for the available options, and you could find mortgage loan programs that help. One such example is the Neighborhood Assistance Corporation of America (NACA).  

    This scheme requires first-time homebuyers to take a training class and show that they can save money. You must also meet the other eligibility requirements such as not owning any other properties and paying off existing loans and debts. Once you fulfill these criteria, you could get buy a home without paying down payment, private mortgage insurance (PMI), and closing costs. The program also entitles you to a fixed-rate mortgage. 

    4. Check for Shorter Amortization Periods 

    Amortization periods are the terms for which you take mortgage loans. Typically, most home loans must be paid off in 30 years. The provider draws up the agreement and splits the borrowed amount with other overheads into monthly installments that you’ll pay over 30 years. When you first start to pay off the loan, a higher percentage of the installment will be interest. As you continue to make payments, you’ll contribute a larger amount toward the principal and build equity.  

    It might interest you to know that it is possible to choose a mortgage term for a shorter time like, say, 15 years. Although the monthly payments will be higher, you’ll pay a lower amount of overall interest and accrue equity or ownership on the house sooner. Opting for a shorter amortization period also helps you become debt-free sooner. Work out the monthly payments according to your affordability. 

    5. Look for Options to Avoid Paying Private Mortgage Insurance 

    If you’re paying down payment of less than 20% of the value of the house, the federal government requires that you buy private mortgage insurance (PMI). This insurance is designed to protect the loan provider in case you default on the loan. Taking this insurance can add several hundred dollars to the mortgage loan amount. But, checking around for options can help you avoid paying this cost.   

    As explained above, availing of NACA programs allow you to waive these costs. Investopedia gives you additional tips like, for instance, taking a “piggy back” mortgage where you take a first loan for 80% of the purchase price of the house and a second loan for another 10% of the home value. You also have the choice of adding the PMI to your monthly installments to avoid paying a lump sum at the time of taking the mortgage. 

    6. Choose Refinancing Options Carefully 

    After every 5-year mortgage term, it is advisable to check around for more favorable interest rates. Accordingly, many homeowners opt to shift their mortgage loans to a provider who charges a lower rate by way of a process called refinancing. If you’re opting to refinance, make sure that the amortization period does not reset to 30 years or you could end up paying more interest in the long run. Do keep in mind that most mortgage agreements have the due-on-sale clause. In case you need to sell the house quickly because of changing life situations, you’ll pay off the lender in full out of the value of the property you receive. For this reason, it is preferable that you clear the loan as soon as possible. 

    With a little research and smart thinking, it is possible to get mortgages at lower rates of interest. Explore your options before finalizing the loan and you can make substantial savings on the cost of the house.  

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