Buying a new home can be exciting, but also stressful and complicated. It’s easy to get caught up in the details of finding what you want, where you want it, for the price you want to pay. If you aren’t careful though, you might overlook other important components of the home-buying process, including your mortgage terms, insurance costs, and taxes.
You may be able to negotiate that perfect home’s price down to an unbelievable bargain, but if you don’t hone in on these factors, you still could end up paying more than you hoped for your mortgage.
The good news is it’s never too late to make changes and save money on your mortgage. Here are five strategies to consider:
1. Refinancing Your Current Home Loan
If your credit score has improved since you got your original mortgage—or if you just didn’t shop around for good terms the first time—a mortgage refinance could be your chance for a do-over.
Securing a lower interest rate can make your monthly payments go down. (Even a small difference in rate can result in significant interest savings over the life of the loan.) Getting a shorter loan term will likely make your payments go up, but you’ll pay off the loan much sooner. Managing to do both could save thousands of dollars.
If that sounds like a goal worth aiming for, here are some steps you could take:
• Knowing what you owe. Before you start looking at refinancing loans, check on the balance of your current loan, the monthly payment, and the interest rate.
• Checking your credit report. Lenders may offer favorable rates or loan terms to borrowers with higher credit scores. You can get a free credit report every year from each of the three big credit bureaus, so you can review the information for accuracy and fix any errors. (But keep in mind that the annual free credit report provides an overview of your credit history, rather than your specific FICOⓇ scores.) If your report isn’t as strong as you hoped, you could always press pause and come back to your plan after you’ve had a chance to rehabilitate your credit status.
• Shopping for the best lender, rates, and terms. Remember, even a half-percent difference in the interest rate can make a big difference if you plan to stay in your home. With SoFi, you can see your rate in minutes without hurting your credit rating. (And keeping fees and other costs in mind as you’re doing your research may help.)
• Clearly understanding the consequences. Getting a lower mortgage payment isn’t always a money-saver. For example, stretching out the loan term can lighten your monthly financial burden, but you could end up paying substantially more in interest over the life of the loan. And though borrowers often choose to roll closing costs into their loan—either because they can’t afford them or don’t want to pay them upfront—doing so means you’ll pay interest on that added amount, diminishing your overall savings.
2. Pulling the plug on your PMI
If you couldn’t put 20% down when you purchased your home (and many first-time homebuyers can’t), you probably were required to buy private mortgage insurance.
(This is not the same thing as your homeowner’s policy, which is for your protection in case of loss or damage in your home. PMI protects the lender in case you default on your loan.)
How expensive is it? PMI typically costs .5% to 1% of your loan amount, so on a $200,000 home loan, that could be $2,000 a year, or $166 a month. If your loan closed on or before July 29, 1999, PMI is automatically canceled:
• On the date the principal balance of the mortgage loan is first scheduled to reach 78% of the original value of the property. (And just FYI, the original value is defined as the purchase price or original appraised value, whichever is less.)
• Or, halfway through the mortgage loan amortization period—that’s if the scheduled loan-to-value ratio doesn’t reach 78% before you make it halfway through the mortgage
However, you can petition your lender to cancel your PMI after 2 years when you think you have built up sufficient equity . Your loan payments must also be current.
Refinancing also can provide an opportunity to dump this cost. If your home’s value has appreciated, and the amount of your new loan is less than 80% of the home’s value as evidenced by a new appraisal, you’ll no longer be obligated to pay PMI.
3. Filing for a homestead exemption to help reduce your property tax
Most states offer a homestead exemption to provide tax and creditor relief on a primary residence. (New Jersey, Pennsylvania, and Rhode Island are among the states that do not.) Depending on your state, a claim form may be mailed to you automatically once your house purchase goes through. But you can also get a Homeowner Exemption Claim Form from the County Assessor’s office or website. And P.S., counties often have deadlines for when the forms need to be filed.
SoFi can help you save money–and make sure
the process is as stress-free as possible.
4. Requesting a New Tax Assessment
The county’s tax records could contain inaccurate, incomplete, or dated information that is causing the tax assessor to put a higher value on your home. You can get a copy of the record at the tax assessor’s office—and property tax records are public and available on county tax assessors’ website. Among the things you can check:
• Is the age, purchase price, square footage, and lot size listed correctly?
• Does the record have the right number of bedrooms and bathrooms?
• Has your homestead exemption been applied?
• Are there any defects that would detract from value listed? Or are there improvements listed that you haven’t made?
If you paid more for your home than what it’s now worth, and the assessment was never adjusted, you could potentially request a lower taxable value. There are a few ways to determine your home’s value:
• Looking in the tax assessor’s records for similar homes in the same neighborhood and comparing them to your own.
• Checking sites like Zillow or Realtor.com for estimates. (Just remember, you’ll need to know the actual sale price to make a solid argument.)
• Hiring an appraiser to give you a written report or requesting a value estimate from the real estate agent who helped you purchase the home.
• If you are refinancing your mortgage and the lender ordered a professional appraisal, you can (and will) get a copy.
Once you have a good idea of where you stand, you can contact your county for a new assessment. This process varies by county, but if your property tax is successfully lowered, the assessment will likely be reviewed every year for changes.
5. Downsizing to a Less Expensive Home
Homeowners often think of downsizing as a move they’ll make in retirement—at that stage, it’s as much about making life easier as it is about saving money.
But if you realize you simply can’t afford the house you have—or that a fourth bedroom and third bathroom aren’t as essential to life as you thought—going smaller is a great way to cut costs. Not only can you save on your house payments, but your heating, cooling and other bills will likely go down.
You also may see your costs drop if you move to a less expensive part of town or a state with low property taxes, or lower sales or gas taxes.
Of course, you’ll want to walk away from your current home with enough money for the move to make sense. You may want to check out what a replacement will cost before you put your place on the market.
Among other things, checking figures such as how your property taxes may change can be helpful. You can also consider looking into homeowners insurance; are you moving from a no-flood zone into a flood zone? How will that change your home insurance premiums? Checking your current mortgage interest rate against the new rate you’d potentially qualify for on a new home is a pragmatic thing to do, too. Have rates gone up since your last home purchase? If so, would the higher rate be offset by a lower purchase price and loan amount?
If you love your home but hate the payments, remember that there are ways to reduce what you’re paying every month. And refinancing could help you get to a more manageable number.
SoFi offers several mortgage refinancing options—with both fixed and adjustable rates and 15- or 30-year terms. And SoFi has competitive rates, easy application process, and quick closings.
There are no hidden fees, so what you’re offered is what you’ll get. And you can talk to a mortgage loan representative anytime about how to save money on mortgage interest or any other questions you might have.
If, on the other hand, downsizing sounds like the right choice for you, SoFi mortgages come with all the same benefits.
Most people expect owning their own home to be their biggest financial undertaking. But that doesn’t mean you should pay more than is absolutely necessary to get it.
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