If you’re like most people, your mortgage is the costliest payment you make each month. Making your mortgage payments can be a struggle, whether you’re buying your first house or twenty years down the road in a house you’ve made your home.
While you might feel stuck in the monotony of your mortgage payments, there’s hope.
Read on for 5 ways you can save money on your mortgage today.
#1 Improve your credit score
One of the biggest factors lenders look at when deciding on APR is your credit score.
FICO credit scores are the standard measure lenders use to assess your financial standing, and it can have a huge impact on your mortgage.
WIth a $200k 30-year mortgage, for example, your credit score could result in tens of thousands of dollars more paid in interest. That hurts.
So while you may be able to acquire a mortgage with a low credit score, that score can be detrimental in the long run.
Here are some concrete ways to improve your credit score quickly in order to buy a home:
- Make sure your credit report is accurate. Mistakes happen, and there’s a chance your credit score might not actually be reflective of your credit history. Does it show late payments you can prove were made on time? Ensure that it’s correct and speak with credit bureaus to amend any errors you encounter.
- Pay down your debts. There are a number of different approaches to achieve debt freedom, from Dave Ramsey’s debt snowball to the ever-popular debt stacking. Sit down with your bills and budget and decide what will be the best strategy for you, then get to work immediately. Your credit can change drastically as those debts diminish.
- Stop opening credit cards. Unless it’s an absolute necessity or you’re sure you’ll be able to pay on time, refrain from opening new lines of credit that might complicate your trek towards better credit. Conversely, keep open lines of credit you’ve successfully made your payments on, even if you don’t really use them now.
- Make your bills on time. Herein lies the key to a strong credit score. Get an app, make notes on your phone, set a reminder, or automate your payments. Do whatever it takes to make sure you get your payments in by their due dates.
#2 Get a VA Loan
So, this option isn’t available to everyone, but if you’re in the military, a VA loan is a wonderful way to finance your home.
Here are some reasons you might consider applying for one and tips you need to know:
- If you finance through a VA loan, there is no PMI. Typically, when you buy a home and pay less than a certain percentage on your down payment, private lenders require you to pay insurance to protect them in case you default on your payments. Whatever your loan agreement, there’s no additional PMI required, which could save you thousands.
- Along those lines, VA loans have no down payment requirement. You read that right. As a veteran, you can get approved for a VA loan with $0 down. That’s impossible to beat in the mortgage world.
- VA loans come with very quick approval. You can get pre-approved for a VA loan in under an hour and potentially close on your home in as little as a month or two.
- You can get a VA loan with less than stellar credit scores. While most private lenders require nearly perfect credit scores for a mortgage, the VA makes it a goal to provide affordable home financing options to veterans with decent credit scores.
- Interest rates are incredibly low. VA loans are lower than the most competitive rates from private lenders, plain and simple.
- VA loans protect you from foreclosure. With its residual income requirements and dedication to speaking up for veterans and the homes they deserve, the VA helps to secure veterans in their homes, not just help them make the purchase.
#3 Shop for Rates
First things first. Never go with the first lender you see just because they claim to have low rates, quick approval, or any other appealing feature. Do your research!
This is a decision that will have potentially lifelong consequences, so you want to be sure you’re making the smartest decision you can.
Luckily, there are plenty of tools out there to help you determine the best options for financing your home.
Here are some pointers:
- Know your score. Per number one on our mortgage saving list, get your credit scores correct and keep them on hand.
- Research not just lenders, but mortgage types. Knowing the difference between a fixed and adjustable rate mortgage and having weighed which one is the best option for you will go a long way.
- Compare lenders. Dig in and do your homework here. There are plenty of great tools online that help you compare the most competitive rates on the market and tell you whether the mortgage you’re considering is worth your while or not.
#4 Refinance Your Mortgage
Refinancing your home is a great way to save on mortgage.
While the other items on the list have mainly spoken to new homebuyers, you can lower your mortgage rates or even the term of your mortgage in the home you’ve owned for years.
- Get a longer term. If your income situation changes and you feel like you’re drowning in mortgage payments, you might consider extending the term of your loan. Keep in mind, though, that it could be costly in the end with interest rates and other fees.
- Get a shorter term. In the long run, a shorter term builds equity faster and saves you more money. You might want to consider refinancing with a shorter term if you have a stable income or just make more on your payments.
- Lower your rates. If financial hardship befalls you, you may consider what’s known as a loan modification to lower your monthly payments. You can also refinance with a lower interest rate, but you’ll need equity to do so and could still be hurt by fees.
#5 Check Out Your Taxes
One of the smartest ways to save money on your mortgage is by keeping a close eye on your taxes, specifically looking at your escrow and property taxes.
Doing so could lead to big wins in your quest for savings.
- Watch your escrow. Escrow taxes are essentially those that your lender requires you to pay on your property, which will be placed in an escrow account. You make monthly payments to it alongside your mortgage. Since you’re steadily paying your property taxes each month, you won’t be stunned with a singular, whopping property tax. It might cost you more at the moment but less later.
- Make sure you’re getting the best rates. Property taxes are pricey. While they may have reflected the value of your home when you purchased it, things change. Homes depreciate, and areas are devalued. If your rate no longer reflects your property, you may want to try lowering your tax assessment.
There’s no shortage of mortgage options on the market.
Knowing what you’re working with, researching rates and lenders, and capitalizing on good credit are surefire ways to save money on your mortgage.