Contact several mortgage companies, banks, or credit unions determining which ones will charge less origination, discount points, broker, or underwriting fees because some fees are simply extra money for the mortgage institutions. A good place to start is to submit an application to http://www.lendingtree.com who will submit your application to several mortgage companies who will provide responses and contact you within a day or two. Compare the different fees (known as "Junk Fees") by requesting a Good Faith Estimate and a Federal Truth-In-Lending Disclosure Statement detailing the fees associated with obtaining a mortgage with that financial institution. Choose the financial institution offering the lowest closing costs and lowest interest rates. Keep in mind the closing costs will typically range from 3% - 6% of the total cost of the home. Also, compare the quoted Annual Percentage Rate (APR), which is different than the interest rate along with the resulting Finance Charge. Some companies will quote an interest rate of perhaps 6%, but they will indicate an APR of 6.5%. The additional .5% is a way for the company to receive some additional income without the consumer fully realizing. The Finance Charge indicates the total interest that will be paid for the life of the loan which can vary by the thousands for different mortgage companies. The realization for the higher APR will be shown in the Finance Charge which is thus a good measure for comparing mortgage companies.
Place as much of a down payment as you can to lower the mortgage loan, which in turn lowers your monthly payments and total interest paid. You will need to decide whether you will be happier with a lower monthly payment with lower tax benefits or a higher monthly payment will higher tax benefits. Years ago, banks used to require a 20% down payment for purchasing property, but they later realized most people are not able to put down such a large amount. The banks then lowered the requirement to typically a 5% down payment, but with a drawback. The homeowner must pay for Private Mortgage Insurance (PMI). PMI is a fee the lender charges to protect the lender in case the homeowner defaults on the loan. The PMI will increase the monthly payment until there is 20% equity in the home (based on the appraised value, not the amount of the loan or the price of the home at the time of purchase). Keep in mind the bank may never tell their customer they have reached the 20% equity, because they want to continue receiving the extra money. When you have reached the 20% equity, contact the bank to drop the PMI. The bank may require you to have your home reappraised before dropping the PMI so they can ensure you do have 20% equity based on the value of your home.
After the PMI has been dropped, continue making the same mortgage payment since you are already conditioned to that payment. You will pay the mortgage loan much quicker than if you did not include the PMI as part of your mortgage payment.
If you sell your home before you reaching 20% equity, request a partial refund of your PMI payments. The payments were originally based on you making payments until reaching 20% equity, therefore may be entitled to a partial refund.
A way to avoid the PMI without a large down-payment is to obtain a second mortgage loan consisting of 20% of the value of the home (minus any down payments) to be used as a down-payment for the mortgage. The mortgage will then consist of a loan amount equal to 80% of the value of the home due to the 20% equity loan. Concentrate on paying the equity loan first while paying the minimum amount for the 80% mortgage loan. After paying off the 20% loan, continue all or part of the payment by including it with the 80% mortgage payment. The 80% loan will then be paid quicker. Some banks will allow you to separate the loans, so contact your bank for more information and details.
Keep in mind, the interest rate for the second loan may be higher, but with the advantage of the interest payments being tax deductible on your yearly tax return while the PMI payment is not tax deductible. The higher interest rate may be offset by the extra tax deduction. There are so many methods of paying your mortgage faster that they can't all be discussed in this book. Contact a loan officer, a tax professional, or a financial planner to help you decide which method best suits your needs.
If you already have the money for your mortgage payment in your bank account and your mortgage company compounds the interest daily, then don't wait to mail your payment until the due date. Keep in mind the interest for the loan is calculated on a daily basis, not at the end of the month. If you have the money in your bank account, don't wait several days to mail the payment because the interest gains in your savings account will be outweighed by the interest paid for the mortgage.
Consider refinancing your mortgage with another company or the same company offering a significantly lower interest rate (at least one percent). Consider refinancing for a shorter term, which can lower the interest rate even more. A drawback to refinancing a loan is that you will have to pay closing costs again. Although, the fees associated with the long-term interest savings can outweigh the closing costs. Some companies allow you the opportunity to include your closing costs as part of the loan. The disadvantage is that your equity is lowered and the loan amount is higher. Consult a tax professional or utilize financial software such as Quicken® or Microsoft Money® to determine the best course of action. Refinancing a mortgage will only be beneficial if you intend on selling your home after you have owned the house long enough to recoup the closing costs which may take several years. A simple method for determining if refinancing is beneficial to you is to divide the additional costs associated with the new mortgage by the monthly savings due to refinancing which results in the number of months until the savings will be realized for refinancing. If you intend to live in your home longer than that, then you will save money. Otherwise, refinancing will not benefit you.
A mistake that occurs when refinancing is to refinance for the same number of years as the original loan. If you are 5 years into a 30-year mortgage, then don't refinance for 30-years. Instead you should at least refinance for a 25-year period or perhaps a 20-year period. Otherwise, you will not save any money refinancing because you have just extended the duration of your loan by another 5-years for a total of 35 years.
Ensure the expenses in the Good Faith Estimate and the Federal Truth-In-Lending Disclosure Statements received when signing up for a loan match the values in the contract on the closing date. The reason is to ensure the closing contract contains no hidden fees or charges. Since the statements bind the company to their estimate, you can dispute and question any unreasonable and unnecessary fees.
The closing costs paid by a buyer or seller can be negotiated along with the sale price of a home. If you are to pay more towards the closing costs, then request to pay more of the property taxes instead of the other fees. The reason is because you can then receive a greater tax benefit since the property taxes are deductible on your income taxes while all the other expenses are not deductible.
Verify if the property taxes paid at closing or settlement were prorated correctly by comparing to the property tax statement received later in the year. The reason is because the property tax charges at closing or settlement are typically based upon the rates for the previous year or are based upon the sale price of the property and not the current taxable value. Simply divide your current property tax charges by 365 to determine the costs per day, then multiple that value by the number of days up to the closing or settlement date. If the resulting value is higher than the value in the closing or settlement documents, then you are entitled to a refund from the seller or the title company (depending upon who received the funds). Use that refund to decrease the overall interest paid for your loan by including it as an additional payment to your principal when paying your mortgage the next month.
Many counties allow for a homestead exemption for only your primary residence. Contact your local tax collector or property appraiser to ensure such an exemption is applied to your property taxes because you may not be notified when your home is purchased.
The values in the closing contract need to be scrutinized especially for cases in which homes are being constructed. The reason is because additional fees are prevalent in the form of an addendum from the original sales contract. Some occasions occur in which a charge is applied for any change, such as a $50 charge for adding a $10 light switch. You may be able to have a stipulation in your contract stating you can make changes to your home up to an agreed upon date or up to an agreed upon point in the construction. In any case, ensure the errors are corrected or disputed before the closing date.
When purchasing a new home, consider purchasing appliances or extras on your own instead of from the builder. The builder may not offer the types of appliances you want at a reasonable price. You may be able to receive a credit for declining an appliance from the builder. Determine the credit price, then compare the price at a local store. If you intend on purchasing multiple appliances, inquire about a discount. Also, factor in the cost for delivery, installation, and sales tax. If the appliance(s) costs more when purchased from the builder, then consider lowering your mortgage amount by purchasing the appliance(s) yourself. Also consider the long-term cost of including the appliance(s) with your mortgage. A $1,000 appliance included in a 30-year mortgage at 8% would ultimately cost $2,642. I know you can get that same appliance at a much cheaper price and lower your mortgage payment! Otherwise, include a higher down payment to offset the cost of the appliance(s) included in the mortgage.
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