Owning a home is a dream come true for many people. It’s an opportunity to have a stable living space, build equity, and potentially even make money through renting or reselling in the future. However, the cost of getting a home loan can add up quickly.
For this reason, many first-time buyers are forced to work with a home loan that isn’t quite what they wanted or stretch their budget too thin. Home loans can also cost thousands of dollars more in interest and fees if not careful. Fortunately, there are ways to reduce those costs and secure a better deal on your home loan.
Here are six surprising ways to reduce costs when getting a home loan for the first time:
- Get A Military Home Loan
If you’re a military member or retired veteran, you may be eligible for a military home loan. These loans are available through a unique program by the Department of Veterans Affairs (VA). The program guarantees a portion of the loan, which can help reduce the cost of a home loan. In addition, military members may be eligible for special interest rates and terms.
When you’re ready to buy a home, ask your lender about the military house buying program. You may be eligible for numerous benefits, such as reduced lending fees and access to state and municipal grants and tax rebates. With this, you could save thousands of dollars on your mortgage.
- Consider Other Government Programs
Aside from VA loans, there are other government home loans that you may be eligible for. Some of the most common ones include the Federal Housing Administration (FHA) loans and the USDA loans. Every loan has a different set of qualifications and requirements.
FHA loans are more accessible because of their lower down payment and credit requirements. Generally, you need a credit score of at least 580 and a 3.5% down payment. You must also have less than a 43% debt-to-income ratio. On the other hand, USDA loans may help you purchase a new home in rural or suburban areas. This type of loan doesn’t require a down payment. However, you’ll need a credit score of at least 640 to qualify.
There are also other government home loans available. It’s worth checking out to see if you qualify and what potential savings these programs could offer.
- Improve Your Credit Score
When applying for any loan, including a home loan, your credit score is essential in determining the interest rate you’ll receive. A higher credit score can mean lower interest rates and overall costs on your mortgage. Therefore, before shopping for a home loan, take steps to boost your credit score. This could include paying off any outstanding debts, disputing errors on your credit report, and managing your debt-to-income ratio. It may take time and effort to grow your credit score, but it can finally pay off with a better deal on your home loan.
- Maximize Your Down Payment
While you may be working with a limited budget, it’s important to remember that a larger down payment can lower interest rates and overall costs. It may feel right to go for the lowest possible down payment, or even no down payment, to save on upfront costs. However, over time, the interest on your loan can add up significantly.
Aim to put at least 20% down on your home if you can afford it. This not only reduces the amount you have to borrow, but it also shows lenders that you’re financially responsible. This could help you secure a better rate on your loan.
- Go For A Shorter Loan Term
The average American home loan is for 30 years. However, you may be able to reduce the cost of your loan by opting for a shorter term. For example, a 15-year loan will typically have a reduced interest rate than a 30-year loan. In addition, you’ll pay off the loan much faster, saving you enough cash by the end of the day. Of course, opting for a shorter loan term will result in higher monthly payments. However, it is a smart financial move if you can afford it.
- Shop Around For The Best Rates
When scouting for a mortgage lender, comparing rates from multiple lenders is essential. This way, you can be assured of getting the best deal possible.
Here are things to remember when shopping around:
- Make sure you’re comparing apples to apples. Ensure you’re comparing loans with the same terms and conditions.
- Don’t just focus on the interest rate. Remember to also look at things like fees and closing costs.
- Don’t be scared to negotiate.
If you find a better rate elsewhere, don’t hesitate to ask your current lender if they can match it. By taking these steps, you can be sure you’re getting the best possible deal on your home loan.
Getting the perfect home loan for your first house can be daunting. However, by considering government programs, shopping around for the best rates, maximizing your down payment, improving your credit score, and opting for a shorter loan term, you can save money on your mortgage and set yourself up for financial success. So, don’t be afraid to research and negotiate for the best deal possible. Your wallet and future self will thank you.