A mortgage payment is likely to be a homeowner's biggest expense each month -- which is why it pays to do your research, hunt for savings, and secure the right mortgage for your specific needs.
With that in mind, Motley Fool analysts Kristine Harjes and Nathan Hamilton discuss two mortgage savings tips that could save homeowners the most. Nailing down an appropriate down payment and shopping mortgage rates when refinancing, or getting pre-approved, can help homeowners cut costs to better meet their budgeting goals. Tune in for more on each topic to ensure you're on the right path.
Kristine Harjes: It seems like there's an infinite amount of advice out there about how to save money on mortgages, but fortunately, I've got mortgage expert Nathan Hamilton with me today to help cut through the noise and share some of the most important tips about saving you money on your mortgage.
Nathan Hamilton: Yeah, and these won't essentially be groundbreaking or anything, but they are something very important that people should focus on. And the first one is just save for a down payment.
I'll go off on a little tangent here, but I found the most important things in life can be answered with "You can, but should you?" And that's ultimately what it comes down to with a down payment. You can put 3% down and get a mortgage, but should you? You can put 20% down on a mortgage, but should you?
It's something to balance, and why it matters is the more you put down on a mortgage, of course the less you're taking out as a loan. The interest rate you're paying on it is lower, and a lower cost to you over the life of that loan.
Harjes: And it can be kind of tough to save that money, especially if you're us and you like to be invested in the stock market. It's tough to say, "You know what? No, I'm not going to put this money in stocks because I'm going to save it for a down payment on my home." But even just a little bit more toward your down payment can ease your financial life significantly over the next 15 or 30 years.
Hamilton: And I'd love [it if there were] statistics out there on this, but I wonder how many new mortgage buyers put down 20%? I don't know the answer, but I imagine it's probably pretty low.
Harjes: I would imagine as well, and that's a very significant expense. It is something that you can do that might not be easy, but it is one of those "should you?" Probably the answer is yes.
Hamilton: Yes, very true.
Harjes: Do you have any other tips for us?
Hamilton: The other one is a fairly simple one as well. It takes some time, but shop three to four lenders. Take the time to go through the process. Get pre-approved with a number of different lenders, and don't be shy about making them compete. Say, "OK, I've got this rate and these costs with one lender. Can you match it with what you're offering?" And why it's important is [you've] got a 30-year mortgage and [you're] paying interest on that. And whatever you can do to get a lower interest rate is going to benefit you tremendously. You're going to save tens of thousands of dollars.
Now, it is a bit of a commitment up front. It's not fun to go through the mortgage process, but if it takes 10-20 hours and you're saving $20,000 over the life of your loan, that's a good hourly rate.
Harjes: Exactly. And when you think about it, these lenders want your business, so it's in your favor to go to them and say, "Hey, what can you do for me?" You're the customer. You should be in charge.
Hamilton: They've got quotas to meet. Sales goals.
Harjes: Exactly. One important thing to remember, also, when you're shopping around is that you can go around to different places as much as you want, but you need to keep it within a short period of time.
Hamilton: Yes, I would recommend keeping your inquiries, when shopping mortgages, into a few-week time period, generally about two to three weeks. And why that matters is every time you have an inquiry, your FICO score is going to be affected. But newer FICO score models are going to account for that, and if they see three, four, or five inquiries from mortgage lenders within a finite period of time, they're going to treat it as one single inquiry, because they realize this is somebody smart that's shopping their rates. We can hopefully give them a better FICO score.
Harjes: They know exactly what you're up to.
Harjes: Thanks so much for these great tips.
Harjes: If you're looking for more, go to fool.com/mortgages, where you can compare rates and also get in contact with certified lenders. You can even download our free mortgage guide, "5 Tips to Increase Your Credit Score Over 800."