Buying a house is perhaps the biggest and most expensive decision you’ll ever make in your life. So it’s surprising how many people don’t shop around for several lenders when buying a house. Not doing so can cost you a lot of money in mortgage monthly payments and interests over the life of the loan. That’s why it’s crucial to learn how to save thousands on your mortgage.
Even when you shop and compare rates from multiple lenders, there are other factors to consider.
In no particular order, here’s how to save thousands on your mortgage before you apply for a mortgage loan:
Related: Apply for a Mortgage Loan
1. Compare mortgage lenders
The main mistake you can make when buying a house is to stick to one mortgage lender for your loan. This is one mistake that can cost you thousands of dollars in mortgage interests. You should always shop for several mortgage lenders and compare their interest rates, fees, etc… Doing so will allow you to make the best decision and save you money on your mortgage. You can check rates on LendingTree to compare offers from multiple lenders, all in one place.
2. Raise your credit score.
A good credit score is not only going to help you get qualified for a mortgage loan but it will also help you get the best interest rate. A good credit score says to the mortgage lenders that you’re responsible with credit and you will unlikely default on the loan. So the higher your credit score, the better.
Before you can take steps to improve your credit score, you should check your credit score to know where you stand. There are several free credit monitoring services where you can check your credit score. My favorite is MyFreeScoreNow . It provides a free credit report and free credit score.
After you have check your credit score, take steps to improve it. One way to raise your credit score is to pay your bills on time. Payment history accounts for 35% of your overall credit score, so it’s important that you don’t have any missed payments. Another way to raise your credit score is to keep your credit card utilization rate below 30%.
Click here for more tips on how to raise your credit score to 850.
3. Put 20% down payment or more.
The typical down payment on a house is 20 percent of the home purchase price. However, most people nowadays, especially first time home buyers with little savings, put down as little as 3% down. This can be good if you have little savings. However, if you want to save on your mortgage, you should consider putting 20 percent down or more. The main reason why is that the more you put down, the less you’ll have to borrow and the more you will save in interest.
Also, when you put at least 20% down payment, you will avoid paying private mortgage insurance (PMI) – a PMI insures the lender in the event you default on the loan. Thus, saving you more money on your mortgage. Moreover, putting 20 percent down payment might help you qualify for a lower interest rate, which then allows you pay less in interest over the life of a loan.
Related: How to Save Money For a House Fast
4. No big purchase until your mortgage finalizes.
It only makes sense to shop for new furniture and new home appliances when buying a house. However, wait until your mortgage loan has finalized before you put big purchases on your credit. Making a big purchase may affect not only your chance of getting a mortgage but also can affect the cost of your mortgage.
5. Don’t apply for new credit.
Similarly to point # 4, do not apply for new credit – like new credit cards and/or personal loan – while in the midst of applying for a mortgage loan. You see, the number of times your credit is pulled, the more inquiries are added to your credit report. That means the more inquiries you have the lower your credit score will get, which can then affect the interest rate of your mortgage loan.
In conclusion, a mortgage loan is a major financial decision, so don’t rush to do anything and make sure you shop several lenders to compare the rates and fees. Doing so will help you save thousands of dollars in interests.
More on Mortgages
- How to Pay off your Mortgage Early
- 3 Things Mortgage Lenders Will Hate About Your Credit Report
- Mortgage Rates
Working With The Right Financial Advisor.
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
Tools to Grow Your Savings
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