Today I’ll discuss four facets of loan payments and how to keep costs down for each:
1. Down payment. While the down payment on a conventional loan requires 20% down, which can be steep for properties with a median price of $400,000 for condominiums and $700,000 to $800,000 for a single-family home, there are other loan options out there—portfolio loans traditionally require 10% down, or even sometimes as little as 5% down, provided you meet some conditions. Government-backed FHA loans can be a sound choice as they only require 3% down, though, again, these loans are more restrictive. The best choice for veterans is the VA loan, which requires no down payment.
2. Monthly payments. If you’re someone that has $100,000 or $200,000 in the bank, try directing that money toward your down payment early on, rather than having to finance more later. If your loan has a 20% down payment requirement, put 25% down. That extra 5% can make all the difference if you want to manage your month-to-month cash flow and stay on top of those monthly payments.
3. Closing costs. The best method to minimize closing costs is to ask the seller for a credit at closing. With the exception of fiercely competitive bidding war situations, I’ve found that sellers will accept an offer and give the buyer a $2,000, $5,000, or even $10,000 credit toward the cost. This is a great way to cut down on the out-of-pocket expenditure that comes with purchasing a home.
4. Carrying (or holding) costs. The interest payments you’re making throughout the life of your mortgage are tax deductible, and applying appropriate tax strategies will ensure that your tax obligations are kept lower.
If you have any further questions or would like to dive in deeper concerning these four ways to save money on your loan, give me a call today. I’ll love to help!