March 23rd, 2019 9:47 AM by Jackie A. Graves
If you’re like most people, housing costs
are your biggest expense. CBS
News reported that U.S. rental prices hit a record high in 2018 at an average
of $1,405 a month. On the flip side, Lending
Tree reported that the average monthly mortgage cost was $1,029 in 2016.
tends to rise with each move and without notice, even if you aren’t moving. But
a mortgage on a home of your own stays the same, so you avoid those unexpected
increases and avoid fluctuating housing expenses. And while buying a home can
seem expensive, it can have advantages over renting, including the absence of
fluctuations in housing costs and the potential return on your investment in a
home of your own.
While a mortgage can seem daunting, there
are ways to keep costs in line. One of those ways, that many people don’t
consider is getting your mortgage online,
which can actually save you money on your mortgage costs.
your finances through your phone was almost unheard of a decade ago, but today it’s
common and completing an online loan application is common. Online lender offer
flexibility and convenience for home buyers. You can research mortgages, rates
and terms when you have time and wherever you are. And comparison shopping
helps you save a lot of money over the term of your home loan. You also:
Save the time and gas
money needed to travel to a lender’s office and
Can possibly access lower interest
rates and closing costs made possible by the competition
between online lenders and between online and brick-and-mortar lenders.
Take advantage of more lenient
underwriting than offered by larger
lenders—a particular plus if your credit score is lower than 700 or so.
Have greater and more real-time
visibility into the process and where
you’re at within that process.
mortgage companies let you, the home buyer, easily manage your closing process
by giving you control. You can watch your application as it goes through the
process through the application portal. This lets you catch a problem before it
upsets your timeline. When you’re missing a document, the online portal can let
you know and even send you an email alert.
mortgage applications give you control and power over your mortgage. Mortgage
calculators built into a lot of applications let you instantly see how small
interest rate changes or different terms affect your mortgage. And because this
information is available 24×7, you don’t have to wait to get answers when the
lending company to be open during business hours.
mortgages also let you shop around for a home loan that fits your needs.
Interest rates affect your loan much more than you realize. An interest rate
that’s 0.25% lower can save you almost $5,000 over 30 years. Changing the term
of the loan to 15 years saves you 50% savings in interest paid over the course
of the loan.
mortgage lenders also often have less overhead than brick-and-mortar community
banks. This lets them pass on savings to their customers through lower interest
rates and fees. Applying to online lenders can also be simpler. You can upload
digital documents instead of printing out copies to take to the lender’s
a possible reduced interest rate with an online mortgage can reduce your loan
payment, you can do other things to reduce it as well.
mortgage insurance (PMI) protects the lender in case you
default. When you borrow more than 80% of the value of the home and get a
conventional fixed-rate loan through a private lender, you’re required to take
out PMI as part of your loan. PMI can add as much as 1% of your loan balance.
On a loan balance of $150,000, that’s $1,500 per year or another $125 to your
payment each month.
a down payment of 20% or more reduces your need for private mortgage insurance.
To avoid PMI, choose a home that lets you make a down payment of at least 20%.
Take the amount of your down payment and multiply by five to get the highest
price you can pay to avoid PMI.
can also consider these options:
Military perks: Eligible
veterans qualify for loans through certain programs with no money down and no
monthly PMI. The Veterans Benefits Administration doesn’t provide loans, but it
acts like a guarantor for a portion of the loan, which allows the lender to
provide favorable terms on VA
Equity gifts: If
you’re buying a family-owned property or one that you’ve rented, you may ask
the family or landlord to gift you your equity in the home as a way to reduce
the purchase price. This can save you money at closing and on PMI. Be prepared
to provide documentation about your relationship and the equity gift. Lenders
want to ensure that you’re not committing fraud.
The 80/10/10 method: This
is an old-school method of allowing the buyer to put down 10% of the purchase price
of the home. The lender provides 80% financing through a first mortgage. The
same lender, or even another lender, provide another 10% of the mortgage, which
goes toward the down payment, eliminating the need for PMI. The method requires
a credit score of at least 700.
the seller to get a lower purchase price. Getting pre-qualified can help as it
lets the seller know you’re serious. Ask for property discounts that reduce the
loan amount, but not the home’s appraised value. This can get you closer to not
having to pay for PMI.
If you’ve already purchased your home and
are paying PMI, check your balance to see how close you are to getting your
balance below 78%. Once you’ve paid down 78% of the home value toward your
mortgage, PMI should automatically be canceled. But once you reach 80%, you can
ask that it be canceled early. You may want to speed up your payments to get
the PMI off your mortgage account. Or you may be able to refinance
your home to drop the PMI requirement.
accepting a large gift to pay down your loan or make a down payment, check with
your lender. Your loan program may regulate the amount of money you can receive
from a family member. And, plan to document any large gift of money when buying
insurance can be a big part of your mortgage payment or a big payment if you don’t
have it wrapped into your mortgage amount. A policy that costs $2,000 annually
adds about $166 to your monthly loan payment or expenses.
insurance is part of your mortgage, the lender keeps these payments in an
escrow account to pay the bill every year. Your lender may have minimum
requirements for your insurance policy. Make sure that your insurance meets its
criteria. Where you live will have a lot to do with the cost of your insurance,
but saving $500 per year can reduce your mortgage payment by about $40 a month.
You can pay
your mortgage faster by making extra payments. You can make two
payments that add up to the same amount you pay monthly to actually make 13
instead of 12 payments annually. You can make one extra payment a year
separately. Or you can pay more than you’re required each month. You can also
use a large gift, bonus or tax refund to make an extra payment on your
savings of any of these methods can add up. For example, on an $80,000 loan at
4.5% interest without PMI, making one extra payment each year by paying
bi-weekly instead of monthly, the mortgage rate savings are over $11,000. Plus,
you can pay off your mortgage about five years faster.
Online mortgages make shopping for a home
less stressful. Online mortgages provide more options for your budget.
Credit.com offers online mortgage loans and
resources to help you find the home of your dreams. If you’re buying your first
home or downsizing for the next stage of your life, learn more about programs
that will help you when shopping for a mortgage.
Your credit report is one of the most
important aspects of getting a mortgage. Borrowers with higher credit scores get
better rates from lenders. And if you have poor credit or your credit score
isn’t high enough, you may struggle to get
approved for a mortgage.
Before you ever start shopping, know your credit score and check your credit reports.
If needed, look for ways to clean up your credit file completing a loan
errors to ensure accuracy.
Pay down accounts that are
close to the maximum limit and all balances in general.
old debts by settling them.
Maintain a good credit
utilization ratio; use no more than 30% of your available
Increase your credit card
credit limits if possible and without then using any of that new limit.
When you apply for a mortgage,
don’t open any new credit accounts. Don’t make any big purchases until your
mortgage loan closes.
Apply for online mortgages from
multiple lenders in a few weeks so that all applications are seen as a
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