House prices have gone up, as have mortgages.
Most people who want to buy a house cannot simply buy one with cash. Instead, they must finance it through a mortgage lender and pay off that loan over time.
But home values across the country have skyrocketed in recent months. In March, the average mortgage taken out for a new home purchase was $374,000, according to the Mortgage Bankers Association.
If you are looking to buy a house today, you will have to pay and take out a larger mortgage than usual. But here are some steps you can take to make your home loan payments more affordable.
Make a larger down payment
If you apply for a conventional mortgage, your lender will require a certain minimum down payment. In some cases, you can get away with only depositing 5%, but in general, you should expect to deposit at least 10%. But even if a lender is willing to give you a conventional mortgage with a 5% or 10% down payment, it’s a good idea to put down 20% if possible. This will help you avoid private mortgage insurance (PMI).
The PMI is a premium that is added to your monthly mortgage payment when you do not pay 20%. It can be up to 1% of your loan balance. If you borrow $374,000, you could be paying $3,740 more per year, or more than $300 more per month. Talk about a strain on your budget.
The more money you put on a home, the less money you will pay on an ongoing basis to cover your mortgage. Now one thing you do not do want to do is make such a large down payment that you have little money left over for emergencies or other home-related expenses, such as renovations and repairs. If you’re not sure how much to set aside, you can use a mortgage calculator to work out some numbers and see what your monthly payments look like under different scenarios.
And if a down payment seems too high, a conventional mortgage may not be your best option. To learn more about the alternatives, read all about how to buy a house with no down payment.
Make sure you are a good mortgage candidate
The more of a strong mortgage candidate you are, the more likely you are to get a low interest rate on your home loan. It will be easier for you to qualify for a competitive mortgage rate if you have:
If you can’t check these items off your list, you might want to pause your home search. There are many resources available to help you improve your personal finances, including:
Taking the time to build your finances could result in significant savings on your mortgage. But if you can’t wait, you might want to look into getting a mortgage with bad credit.
Given the way home values have skyrocketed recently, it’s no surprise that mortgage borrowers are taking out bigger loans. If you want to keep your monthly payments to a minimum, do everything you can to ensure you get the lowest possible mortgage rate.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.