Saving to buy a house consumes a lot of time and emotional energy. Add on the stress of house-shopping and learning new terminology ("Points? What are points?"), and you may be so stressed you overlook the tactics that can help you save on your mortgage. It's not quite as straightforward as scoring 80% off on an Instant Pot on Black Friday, but there are definitely ways to save, sometimes thousands of dollars. Here are seven ways to save the big bucks on your home loan from experts like Consumer Reports and GO BankingRates:
Learn which aspects of a home loan are locked in. "It can come as a punch in the gut to realize that a slew of mortgage fees — for loan processing, title insurance, overnight document delivery, and other services — are pulling more dollars from your pockets at the closing," Consumer Reports said. And many of these are non-negotiable, so don't get bogged down trying to alter costs that the bank chooses. Instead, focus on the fees you can control.
Look for mortgage savings before you settle on a lender. Especially if you're a first-time homebuyer, you may find it difficult to believe that lenders compete for the privilege of writing your loan. Usually, if you can qualify to buy a house, more than one lender will make a bid to loan you the money. It's time-consuming and paperwork intensive, but you'll definitely save on your mortgage if you make an effort to comparison shop.
Step one is obtaining the free, standardized-form Loan Estimate from a few different lenders. You'll want one that covers both the 15- and 30-year loan options. It may cost you around $20 so the lender can perform a credit inquiry, but shopping around can save you thousands in interest and fees. It's also a good time to gauge each lender's integrity as you match what's on the estimate with what the lender's agent told you in person or over the phone.
Also, be aware that all these credit inquires will ping your credit score, but only for a short while. Try to gather all your Loan Estimates within a few weeks of each other. Generally, credit bureaus consider all home loan inquiries made in a 45-day period as a single inquiry, so it doesn't drag your credit score much. And bear in mind, you'll need details to get Loan Estimates. They require your income and the home's address, for example.
Allow the Consumer Financial Protection Bureau to compare loans for you. Once you've got those Loan Estimates, hit up the CFPB's comparison tool. It provides an "apples to apples" comparison of all sorts of loan details, like whether your interest rate is adjustable or if you can expect prepayment penalties, along with your estimated closing costs.
Jettison the "junk fees." A good interest rate can save you tens of thousands of dollars in savings over the life of your loan. The next biggest source of savings involves choosing the lender with the lowest origination charges. In general, you're trying to avoid any of the "junk fees" listed in the "closing cost details" section of each Loan Estimate. They have many aliases, like "underwriting fee or "application fee." This is where "many lenders make their money, sometimes in the hundreds or thousands of dollars," CR noted.
"The fees are gibberish that mean somebody essentially pressed a button on a computer to send something," Lisa Sitkin, senior staff attorney at the not-for-profit National Housing Law Project told CR. "So much is automated these days that it doesn't justify a $300 processing fee."
You can opt for the most reasonable origination fees, or try to use a Loan Estimate as a basis for bargaining with a preferred lender who's charging too many junk fees. Or use the Loan Estimate to bargain with the lender you prefer to reduce or eliminate origination charges. "Consumers can negotiate anything they want, and probably should," Bill Banfield, executive vice president of capital markets at Quicken Loans told Consumer Reports. Of course, you'll have to make tradeoffs in some situations. For example, to get those origination fees to zero or nearly nothing, "typically you'll pay a slightly higher interest rate," Banfield added.
Cut costs on the buyer's attorney. The easiest pickings on places you can comparison shop are listed in the Loan Estimate as "Services You Can Shop For." One of the most profitable costs to cut: the buyer's attorney. "This fee can be a few hundred to several thousand dollars, depending on location," CR noted. "If your state requires a buyer's attorney at mortgage closings — or if you want one to ensure a smoother process — find a real estate attorney through your real estate agent, friends, or a local website that rates professionals. Talk to several candidates; most charge a flat fee, and the difference in price can be several hundred dollars."
Other areas you may be able to save on include the premium you pay for homeowners insurance, the cost of your title insurance policy, and the price you pay for a survey. "You might find the survey for the home on your own at the municipal clerk's office, saving the cost," CR added.
Look into bi-weekly payments. You can still save on your mortgage after you've settled on a lender or even purchased your house. Bi-weekly payments can slash your lifetime mortgage cost by thousands, according to mom blogger Amber Battishill.
"One of the most effective and budget-friendly ways that we were able to save and pay down our mortgage more quickly was making bi-weekly payments," she explained on the GO BankingRates blog. "Bi-weekly payments are simply your mortgage payment split in half, paying the first installment after week No. 2 and the second installment after week No. 4. It actually works out so that you end up making an extra payment each year, and the impact is substantial. In the two years that my husband and I decided to switch to bi-weekly payments, we've already saved $5,000 in interest and 10 payments."
Punt your private mortgage insurance when you can. One of those terms you'll get familiar with in the home-buying process is "private mortgage insurance." As Battishill explained, many people must purchase PMI because their down payment on a conventional loan doesn't come up to 20%. The big mortgage savings comes when you do reach that 20% threshold, so be sure you take advantage of it, she added. "Once we had paid off more than 20 percent of our loan, we petitioned our lender to cancel our PMI. By dropping our PMI, we were able to save upwards of $1,000 a year."
There's an additional savings here, too, if you follow Battishill's lead. "If you're already accustomed to paying that extra amount (and can continue to do so comfortably), simply put the amount you save from canceling your PMI right back into loan repayment," she recommended. "You won't feel the difference in your budget, and you'll make a big difference in the long run."
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