Put your cost-saving skills to work during the mortgage process.
If you’re a coupon-clipping, discount-hunting, “never pay full price” kind of shopper, you probably know the cheapest way to purchase anything.
But did you know there are also ways to cut VA loan costs? From improving your borrower profile to bartering with a seller, there are several ways to shave costs from your home loan.
Take a look at three tried-and-true cost-cutting measures, and make sure you’re working with an experienced VA lender and a trusted real estate agent for the best results.
1. Ask the seller to pay closing costs
VA loan closing costs typically range from 3-4 percent of the total loan amount. That means that military buyers could be asked to fork over $6,000-$8,000 at the closing table.
But we’ll let you in on a little secret: the majority of VA loan borrowers at Veterans United don’t pay anything out of pocket on closing day. That’s because they take advantage of a common negotiation tactic and VA loan benefit. They ask the seller to pay closing costs.
And don’t be shy. It’s one of the most common negotiation requests, and it’s often granted.
2. Improve your credit score
A borrower with a low credit score represents more risk for lenders. Lenders will make marginal borrowers pay a higher interest rate to cover that risk.
An applicant who builds a solid credit history backed by a superior credit score, on the other hand, is a lender’s dream. Those are the borrowers who secure the best rates and the lowest monthly payments.
Borrowers with scores in the 700s can sometimes grab rates 1 1/2 percentage points below the sub-prime rate. Check out what a difference those 1 1/2 points can make:
| 30-year fixed $200,000 loan | ||
|---|---|---|
| Interest rate | Monthly payment | Total interest paid |
| 3.2% | $1,072.94 | $102,591.35 |
| 4.7% | $1,255.97 | $166,816.67 |
Check out our “Guide to Understanding Credit Scores” to identify simple ways to boost your credit score.
Erasing debt can result in big interest savings.
3. Build equity
Borrowing money costs money. The most direct way to slash those costs? Pay off your debt.
By building equity in your home, you reduce the amount of interest you’ll have to pay. And you don’t have to pay your mortgage off in one big chunk. Simply diverting a few extra dollars to your loan can make a big difference. Here are some common ways borrowers chip away at their mortgage debt:
- Make one extra payment a year. Extra payments can go directly to principal, which immediately builds your equity. Adding one extra payment annually could save you over $21,000 over the life of a 30-year $200,000 loan, and help you pay off your loan almost five years early.
- Round up your monthly payment. If your current monthly payment is $970, try rounding your check up to $1,000. An additional $30 per month could help you pay off a $200,000 loan 1.7 years sooner, and save you $7,690 in interest.
- Refinance down the road. Shorter loans usually feature lower interest rates. If your income increases and rates are favorable, you might want to refinance to a shorter loan a few years after your purchase.
4. Get an initial estimate of your VA loan costs
When you’re ready to purchase, make sure to get an estimate of your anticipated loan fees and costs. Shop around, but understand that fees won’t tell the whole story of a lender.
To get an early look at your projected VA loan costs, contact Veterans United at 855-524-7279 or via www.VeteransUnited.com.
Photos courtesy of dok1 and Alan Cleaver