So, you just closed on your new home. Great! It is very exciting, but there is a lot to do, and if you do not do things right, you could cost yourself extra money each month. While you might not be thinking about saving money right now, it will pay off in the long run if you consider the ways below of saving money as a home owner.
#1 Shop for Homeowner’s Insurance
Homeowner’s insurance is required if you have a mortgage. Because it is a necessity, many people will just get a quote on the policy and get it over with. But it is wise to shop around to save on homeowner’s insurance. Experts say you should get at least three quotes on your insurance. You might be surprised to find that some companies charge substantially more for very similar policies. It is possible that one company may charge more for a certain feature of the policy or home; for instance, one company might charge you more for having hardwood floors but the other does not. Even 1st-time home buyers should look around and compare insurance prior to closing escrow.
#2 Have PMI Removed As Soon As Possible
You are required to have private mortgage insurance or PMI on your property if you put less than 20% down on the home. PMI will reimburse the lender for most of the mortgage if you do not pay on the property. Research shows that people who put less than 20% down are more likely to walk away from the mortgage.
If you have a conventional loan, the lender should remove your PMI after you reach 20% equity. But you need to request they remove the PMI in writing. You can justify removal of PMI if you have made enough payments to have enough equity. Or, you could have home appreciation in an amount high enough to give you 20% equity.
If you are getting to 20% equity through appreciation, the lender may want a new appraisal to ensure the home is worth what you say it is.
When you reach 78% loan to value or 22% equity, the lender is required by law to remove the PMI without request. Make sure you do not pay for PMI longer than necessary.
#3 Fight Property Assessment
Property taxes can add up to several thousand dollars each year. If you think the value of your home has dropped and it was not accounted for in your assessment, you can petition the city or county and fight the assessment. If you can show the house is worth less, you may lower your property taxes.
The most common and popular way to save a lot on your mortgage is to refinance it to a lower rate. If you bought your home a decade ago and are paying a higher rate than today, you may want to consider a refinance. People who can save 1% on their new rate can find they are paying several hundred less each month.
Note that every time you get a new mortgage, there are closing costs and fees associated with it. You need to determine if you will save enough each month for enough years to make the refinance worth it. If you plan to live in the house for many years, saving $100 or $200 per month on your loan payment may make it worth it to refinance. If you are going to sell in two years, you may want to stay in your current loan.
#5 Modify Your Loan
If you are getting behind on your payments and have a financial hardship, you might be eligible to modify the rate, term or balance of the loan. While you might think few lenders would be willing to do this, you might find they are willing because they do not want too many of the loans they handle to go bad. Not every homeowner will qualify, but if you do, you could end up with favorable terms that allow you to pay less each month and to possibly reduce the balance. Some who get a loan modification might have the term extended to 40 years, rate dropped by 1% or more, or reduce the principal by tens of thousands of dollars.
Owning a home is one of the great joys of America, but it also expensive. If you do your homework, you may be able to whittle down what you are paying every month and year substantially. If you are on time on your payments, focus on getting rid of PMI and refinancing if your rate is higher than current market rates. If you are behind on your mortgage, you could be a good fit for a loan modification.