What’s your biggest expense? If you’re like most people, it’s putting a roof over your head. And it’s getting more expensive.
In fact, the cost of housing is rising faster than incomes for the middle class, according to a National Housing Conference report. Renters may have the worst of it; the Wall Street Journal reports that rent has been rising for 23 consecutive quarters.
By buying a house, you have more control over rising housing costs. You won’t have to worry about a landlord raising the rent, and a fixed-rate mortgage loan guarantees the same principle-and-interest loan payment for the next 30 years.
Yes, borrowing for a home is expensive. Fortunately, with a few smart strategies, you can reduce your monthly mortgage payments and cut the overall cost of paying for your home. Here are some options:
1. Modify Your Loan
If you are late on payments or going through tough times, you might qualify for a loan modification through various programs.
Depending on the program, you could qualify for a reduced interest rate, forgiveness of part of the principal, or an extended loan period and lower monthly payment. Check out various programs onMakingHomeAffordable.gov or contact your mortgage servicer.
2. Cut Out the PMI
If you borrow more than 80% of the value of your home, you normally have to pay for private mortgage insurance (PMI) to protect the lender. PMI typically costs between .5% and 1% of the loan amount. So if your loan balance is around $140,000, you could be paying as much as $1,400 for PMI just this year.
A down payment of 20% is the most obvious way to avoid paying for PMI. If this is tough with the homes you’re considering, Realtor.com suggests simply shopping for lower-priced homes for which you can make a 20% down payment. Multiply the down payment you have by five to arrive at the highest price you can pay while avoiding PMI.
Credit.com says some lenders still offer 80/10/10 programs. This structure allows you to borrow only 80% on the primary mortgage, so you don’t have to pay for PMI, and then borrow another 10% as a second mortgage loan — sometimes from the same lender. You generally need acredit score of 700 or higher to qualify.
If you’ve already bought your home, you can speed up those payments to get the balance below 80%, and then request that the PMI payments be dropped. Lenders do not always agree to drop the insurance requirement, according to BankRate.com, but at that point you could also refinance to get rid of the PMI. More here.