July 24, 2024
How Homebuyers Could Potentially Save Hundreds of Dollars a Month

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According to National Association of Realtors (NAR), homebuyers could potentially save “hundreds of dollars a month” on their mortgages simply by shopping around before agreeing to any one lender. Roughly half of buyers get a quote from just one lender, even though the first lender doesn’t always give the best deal.

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Citing a Freddie Mac study, NAR also found that buyers who shop around and get multiple quotes end up saving an average of $600 to $1,200 a year on their mortgage loan. Another study, meanwhile, estimated that they could save close to $84,000 over the life of their loan depending on factors like the size of the loan and rate they end up choosing.

Shopping around could very well save you hundreds of dollars each month, but there are some other ways to save money on your home purchase. Here are the big ones, according to real estate experts.

Get a Loan Without Private Mortgage Insurance

Private mortgage insurance (PMI) can add a hundred dollars or more to your monthly payment, depending on your loan size and terms. So, getting a mortgage without it is one of the best ways to save money.

But how do you avoid PMI?

Nathaniel Pitchon-Getzels, a buyer’s agent and listing agent at Compass, suggested putting 20% or more down on the loan. And if that doesn’t work, look for a specialty mortgage. “Many specialty loans offer no PMI as well on a loan specific basis,” he said.

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Look Into Specialty Programs

Depending on where you live, you might be able to reduce your monthly mortgage payment by way of a specialty program. Jared Blumberg, licensed real estate salesperson and co-founder of the Blumberg Werner Group at Compass New York City, gave an example of this.

“Something available to buyers in New York is called a purchase CEMA, which stands for consolidation extension and modification agreement. It is typically for people who are refinancing a loan but in some situations can also be used for buyers as well,” he said.

“It allows you to assign an existing mortgage to a new buyer and saves them a portion of the mortgage recording tax,” he continued. “This tax can be 1.8% to 2.9% pending the amount of the mortgage. With typical home prices in New York, the savings here can be rather significant. The catch is it can only be done with condos and townhomes, so not co-ops.”

Refinance Your Existing Loan

Refinancing a loan can lower your monthly payment by hundreds of dollars if you do it right.

“If your financial situation has improved significantly — for example, if your credit score is much higher and your income has increased notably — then you may be able to refinance your mortgage and secure a much better rate,” said Seamus Nally, CEO of TurboTenant. “Doing this can then lower your mortgage payments and total money spent on interest, so it is worth looking into if your financial situation has improved in such a way.”

Say, for example, you have a $350,000 mortgage with a 30-year term and a fixed interest rate of 7%. Not accounting for things like homeowners insurance or property taxes, your estimated monthly payment would be $2,811.

Now, say you could refinance that same loan for a 6% interest rate. Doing this could bring your monthly payment down to about $2,581. That’s $230 in monthly savings.

Do a Temporary or Permanent Buydown

Another option that Pitchon-Getzels suggested is to do a temporary buydown. This will give you a lower interest rate for the first few years of the loan and lower your monthly payment accordingly — potentially by hundreds of dollars.

Alternatively, he suggested doing a permanent buydown. You’ll need to pay discount points to lower your interest rate, but the effect is permanent. Depending on how much you get your rate lowered, you could save substantially.

Work On Your Credit Score

Before you ever even apply for a mortgage, make sure your credit score is as high as possible. This can help you get a better rate, though some lenders have a lower limit on just what that rate can be — regardless of your credit.

“I had a tenant who took six months to improve their credit score from 680 to 740,” said Daniel Rivera, the owner of Proactive Property Management Solutions. “This improvement qualified them for an interest rate reduction of 0.75%, saving them around $200 monthly.”

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This article originally appeared on GOBankingRates.com: How Homebuyers Could Potentially Save Hundreds of Dollars a Month

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