Buying a home can be an overwhelming process, especially if it is your first time. It can be easy to get swept along in the process without stopping to make sure you are getting the best deal on your mortgage payment. There are at least six ways to ensure that at the end of the homebuying adventure you end up with the absolute possible lowest home loan payment.
- Negotiate for the Lowest Interest Rate
Once you have been approved for a mortgage, you will be offered a mortgage interest rate by your lender. That rate can sometimes be negotiated. Your lender may suggest ways you could bring down the rate, like paying mortgage points. In the end, lenders do operate in a competitive market and you could snag a lower payment simply by inquiring if your lender can go any lower on the rate. You’ll never know unless you ask!
- Consider ARM loans
While Adjustable Rate Mortgage (ARM) loans got a lot of negative attention after the housing market crash, they can actually be a helpful tool in many situations. ARMs allow for an introductory low, fixed rate for one to five years typically, after which the rate will be allowed to adjust higher or lower according to the market trends. For example, if you do not plan to own the home for more than a few years, an ARM could provide you with an ultra-low interest rate and payment for that time. And you if you move and sell before the initial fixed-rate period is over, you can save yourself a ton of money.
- Use the CFPB Comparison Tool
If you are considering several types of mortgage loans and you get a few different loan estimates, you can turn them into an “apples to apples” comparison by using the Consumer Financial Protection Bureau’s comparison tool (https://www.consumerfinance.gov/owning-a-home/loan-estimate/). It can show you which loans have the lowest monthly payments versus which have the lowest APRs. It can also make clear the terms (adjustable v. fixed, prepayment penalties, closing cost totals, etc.) of each loan offer.
- Beef Up Your Down Payment
While it does take money out of your pocket up front, the more you are able to contribute as a down payment, the less risk your lender has to shoulder and the better your interest rate and terms will be. That equals a lower monthly payment as well.
- Look for Loan Offers with Minimal Fees
Every loan comes with fees. These can include origination fees, discount points, title searches and insurance, credit check fees, taxes, and appraisal fees. Not all loans contain the same fees though and you should examine them closely and even try to negotiate those that are at the lender’s discretion.
- Avoid PMI
If you contribute less than a 20% down payment, you will be required to pay private mortgage insurance. Those premiums can add significantly to your monthly payments. PMI can be canceled when you reach 20% equity in your home, so the faster you pay down your mortgage the faster your monthly payments can drop. You may also be able to escape PMI by taking out a piggyback loan – one loan for 80% of the price, another loan for 10% and a 10% down payment.
With some research and negotiating, you can be sure you are getting the rock-bottom lowest payment for your new mortgage loan.