There’s nothing super-human that you need to do to save money on your next home purchase. We have put together a list of lesser facts that you need to know so that you are privvy to the best advice we have gathered in our decades of real estate experience.
You don’t need a 20% down payment to eliminate mortgage insurance.
Private Mortgage Insurance generally costs $65-256 per month. In order to reduce their monthly costs, many buyers try to put down 20% or more to eliminate PMI. However, if you don’t have that much cash to put down, you can opt for a single premium option where you pay a one time amount (and never have to make that PMI payment again). Over the life of the loan, this route usually costs 1/3 of the total amount compared to making the old fashioned monthly payment.
If you already have a mortgage and know that you have 20% equity in your home, you should be able to stop paying Private Mortgage Insurance. The trick here is that you have to initiate it with your bank.
Some borrowers assume that after a certain amount of time, the PMI payments will automatically stop. However, your bank will continue collecting this payment until you contact them! If you’re unsure about whether you have 20% equity, contact your Realtor to see what your home is worth. This estimate won’t be a true appraisal, but it will give you the most accurate number before you fork out the cost of an appraiser.
Conventional mortgages are obtainable with as little as 3% down.
A few years ago, only FHA loans could offer such low down payment options, but now you’ll find some conventional options with less money out of pocket (and fewer hoops to jump through). Lower mortgage rates don’t always make a loan more affordable. The true cost of getting a mortgage is more than simply the APR or Annual Percentage Rate.
Some lenders promise rates that sound too good to be true and then hike up points or initiation fees to pay for the difference. In other words, know that you can pay for a lower interest rate – but it will cost you. This is why it’s a good idea to get estimates from 2 lenders so that you can compare costs.
The daily interest rate you hear doesn’t necessarily apply to you.
When buyers ask “What’s the interest rate today?” the answer is more complicated than a simple percentage. As we just mentioned, rates change depending on the points that a borrower pays among other factors such as credit scores. Although rates do in fact change daily (which is why your lender might suggest locking in a rate on a particular day), know that you could be paying a different percentage than you hear in the news or in your initial conversation with your bank.
Shorter term loans save money!
The 30 year mortgage is a staple, but you’ll pay a lot more interest with these longer lasting loans. A lot. Talk with your lender to see how much more a monthly payment would be for a 15 or 20 year loan compared with a 30 year. For example, on a $200,000 home, this strategy can save up to $59,000 with a 20 year loan and $86,000 compared to a 15 year!
We hope these insights have helped you to get a better understanding of the ABC’s of the mortgage world. As always, if you are interested in buying a Ucluelet home, we are pleased to make the transition as seamless as possible. Please feel free to contact us when it’s time for you to Start Living in Ukee!