6 ways to reduce your payment when you purchase
December 3, 2022
Buy down your rate
The most well known and common way is a permanent buydown by paying discount points for a lower rate. Paying one point is the equivalent cost of 1% of your loan amount. Do not mistake this with a 1% reduction in rate. Your loan officer will be able to tell you what the costs and options are specific to your scenario.
Pre-Pay Mortgage Insurance
Or pay a split MI. If you are purchasing with conventional financing and not putting at least 20% down, you will have mortgage insurance. However, you can prepay it so it's not in your payment, or pre-pay part of it and have a lower PMI payment.
This is a great solution for buyers who need to ease into a higher house payment or for other strategic reasons find they will benefit from only paying their interest portion for a period of time.
Seller paid interest buydown
Often referred to as a temporary rate, this strategy actually involves credit, typically from the seller, to prepay your interest for up to 3 years, in some cases. Referred to as a 3-2-1, 2-1 or 1-1 buydown, the credit is held and used to pay the interest portion of your payment at rates up to 3% lower in the first year than the current market rate. It is still a fixed rate loan, but you get a reduced payment in the first few years which can be extremely beneficial if there is a chance rates drop and you can refinance prior to the start of the full payment amount. It can be a much greater cost saving than reducing the purchase price, and if you refinance before the buydown term, you are refunded the leftover funds that were not used.
Purchase a multi-unit
If you are purchasing a home to live in as a primary residence, consider purchasing a 2-4 unit property. Not only can the other units rental payments be considered in your qualifying, they help offset your payment. Perhaps even cover the entire mortgage payment and you end up living with your mortgage payment paid by collected rents.
Leaving this for last because depending on loan strategy, it could have the least impact on your monthly payment, unless it is a significant price reduction. Depending on where you live, a $10,000 reduction in the purchase price may only change your payment $60-70 per month. Not really a lot of bang for the decreased buck until the reduction is much bigger. Often that same $10,000 used as seller credit can generate a bigger savings.
You should never have to be the expert in your mortgage strategy, just make sure you partner with one. Most loan officers do not specialize in loan strategy, they just process your numbers using standard parameters and loan programs options. All of these strategies have differing pros and cons for your unique situation. A true mortgage strategy expert like myself is the difference between a loan that costs you money and one that saves you money.
Don't just "get a loan," get the right loan strategy for you.
Alysha Boles is a Mortgage Loan Advisor and Debt Strategist that specializes in both the planning, pre-approval and loan process of mortgage lending. Licensed in California and Texas and the ability to connect you with a licensed professional in all 50 states. She can be reached at (661) 858-7214, or inquire online at http://www.advisoralysha.com.