Buying a home is one of the biggest investment you will ever make. Even if you are planning to move sometimes in the future, chances are good that you will spend five to ten years in your home. For this reason, it is important to select a mortgage solution that fits you now and in the next decade. Fortunately, there are several ways to save money on a home loan.
First Time Home Buyer loans are not just for those buying for the first time. If you have not owned a home in the past three years, you can still qualify. FHA loans require a lower, 3.5% down payment than conventional loans, and they can also be obtained with lower credit scores.
If you are active duty, a veteran, or a surviving spouse, you can save money by using veteran benefits to get a low VA home loan. With a VA loan, there’s no money down, and even closing costs can be rolled into the loan balance. This allows veterans to purchase a home with virtually no out-of-pocket cost. On top of that, VA loans typically offer more relaxed guidelines, low interest rates, and they can accommodate credit scores in the low 600s. There is a 2.15% funding fee that can be reduced by making a voluntary down payment.
15 Year Loans
Using a 15-year loan is a good option for those who are comfortable with a slightly higher monthly mortgage payment in favor of paying down their principal balance faster. This allows for a shorter loan term and substantial savings on loan interest.
The United States Department of Agriculture offers excellent loan terms on homes located in rural areas. The USDA loan requires no down payment and its interest rate always runs below that of conventional loans. They can also be used to buy land and build a home. Many larger towns have areas and streets that are zoned as rural and fit under the USDA loan.
Buying Down the Rate
If you have extra cash and would like to reduce the overall cost of your loan and your monthly payments, you can always buy down your mortgage rate in points. One point is one percent of your mortgage amount, and you can typically buy down in 0.25% increments.
Seller Contribution to Closing
If you are low on cash when buying a home, you have the option of buying below your means and financing your closing costs. An alternative to this option is asking your seller to contribute to your closing costs. This may not work with every transaction, but if you are buying from a motivated seller, and you need a few thousand dollars to make the sale happen, it is worth asking.
In the end, it is important that you do your research, work with a reliable realtor, and shop around for a good mortgage rate and a lender you trust. It’s important to evaluate the difference between must-haves and luxuries. Ultimately, this research will help guide you to the right financing decision for your needs and budget. Do not be afraid to ask questions and to follow-up on clarifications. You need to be able to make an informed decision so that you can enjoy your home for years to come.