Make Your New House More Affordable: 3 Strategies for Lowering Your Mortgage Payment
If you're looking to purchase a new home, you're probably quite familiar with a mortgage calculator. In fact, many sites that list real estate have calculators built right in to give you an idea of what your payment would be for a particular house. However, not all mortgage calculators are created equally. Some will give you the base cost for your mortgage only while others will calculate insurance, taxes and other fees. These additional costs can place a home out of your reach financially, so it's important that you calculate them in. Fortunately, there are ways you can lower or eliminate extra fees in an effort to keep your mortgage payment as low as possible.
Make a Large Down Payment
The recommended down payment for a new home is 20 percent of the purchase price. However, you can get by with putting down as little as 3.5 percent if you go with an FHA loan. The latter may seem like the more attractive option, but it will cost you in the end. You see, whenever you finance more than 80 percent of the value of any home, you have to purchase what's known as private mortgage insurance. Private mortgage insurance (PMI) protects the lender, but it costs you. Expect to spend 0.5 to 1 percent of the loan each year on PMI. The amount will be rolled into your mortgage payment and can cost hundreds per month.
Secure a Lower Interest Rate
Your interest rate determines how much you will pay in mortgage interest each month. The more interest you have to pay, the higher your mortgage payment will be. For example, a difference of 0.25 percent on your interest rate on a $100,000 loan can tack on an extra $26 per month. An interest rate that's 1 percent higher would cost you quite a bit more.
Pay Extra Costs at Closing
At closing, you will have the option of rolling some of your expenses, such as application fees, appraisal fees, warranties, association dues, and more, into your mortgage. This allows you to avoid paying extra closing costs, but it will increase the amount you own on your home, which will result in a higher mortgage payment.
As you can see, there are several ways you can lower your mortgage payment. Talk to a realtor like RE/MAX Associates of Dallas for more tips. You can stash your savings away in an interest-bearing account or use them to splurge on a larger house. Your savings may even help you get that chef's kitchen you've been dreaming of.
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