How to Save on a Mortgage Payment
In spite of the fact that it’s cheaper to buy than rent in some of the largest markets, you might put off buying a home because you think a mortgage is too expensive. The truth is, if you’re already renting, there’s a pretty good chance that you can afford to own.
Sit down with one of our loan experts and calculate how much house you can afford based on what you’re currently paying in rent. The results might shock you—and it should. If you’re going to make a house payment, it only makes sense for payments to go toward building equity.
Of course, homeownership comes with additional costs such as repairs and maintenance. But don’t let this stop you from taking a leap, especially when there are ways to save on a mortgage payment. The more you save, the easier it is to build a cash reserve for a rainy day.
Here’s a look at ways to lower your mortgage payment and remove the fear of homeownership.
1. Put Down at Least 20%
Purchasing a house with a low down payment means you’ll pay mortgage insurance, which increases monthly payments.
If you put down a minimum 20%, you’ll not only start off with substantial equity, you’ll also avoid mortgage insurance and reduce your monthly payment by $100 to $200+ a month; plus a higher down payment can help you negotiate a lower mortgage rate.
Of course, the dilemma is coming up with a sizable down payment. If you’re willing to make sacrifices, saving 20% might be easier than you think. Can you live at home with your parents for a couple of years and save money? Or rent an apartment with several roommates to minimize your living expenses.
2. Rent Out a Room in Your New House
If you’re used to living with someone, consider getting a roommate once you purchase a property. You’ll qualify for the mortgage on your own, which means your income must be enough to afford the mortgage payment without assistance. Even so, sharing the household expenses with another person reduces how much you pay toward the mortgage every month. And if you’re able to spend less out-of-pocket, getting a mortgage might seem less scarier.
Of course, there’s always a chance of your roommate moving out. So make sure you maintain enough income in the event that you have to pay the entire mortgage.
3. Improve Your Credit Score
If you’re thinking about buying, now‘s the time to get your credit in check. You can get a mortgage with a credit score as low as 620 with a conventional loan, and as low as 580 with an FHA loan. Just know that lower scores result in higher interest rates.
A score in the mid-700s and higher can help you get a favorable interest rate and a lower payment. To build your score, pay your bills on time, pay off debt, limit your number of credit inquiries and never cosign a loan for anyone.
4. Don’t Be Afraid of an Adjustable Rate Mortgage
If you intend to live in the house for a long time, a fixed-rate mortgage is the way to go. But if you plan to live in the house for less than three to five years, don’t be afraid of an adjustable-rate mortgage (ARM).
These mortgages feature an initial fixed-rate for the first three, five or seven years, and then the rate adjusts every year thereafter. ARMs can be unpredictable in the long run, but these loans can also save you money in the short-term. The initial rate with an ARM is usually lower than most fixed-rate mortgages, which can potentially save you a lot of money.
Before you assume a mortgage is too expensive, explore all options and consider ways to minimize your monthly payment. By doing so, you might get a mortgage with a payment that’s comparable to or less than what you’re currently paying. Cherry Creek Mortgage offers a variety of mortgage options to meet the needs of various buyers. Give us a call to find the right loan and the most affordable interest rate.