Gol-darn high mortgage payments! Well, I guess that is just how it is, right?

Those better not be the words in your brain. Where is your American Spirit of breaking the rules, not settling, and exploring the unknown? I can tell you, your American Spirit is going to be reinvigorated with this post because I’m GOING TO YELL AT YOU WITH FULL CAPS TO MAKE SURE YOU PAY ATTENTION AND LISTEN TO ME WHEN I SAY DO NOT BE A LAZY BUTT AND JUST SETTLE FOR WHATEVER HOUSE PAYMENT COMES YOUR WAY. NO LAZY BUTT’S HERE!!!!!!!!!!!!!!!!

When it comes to buying a home, one of the largest concerns for people is how to navigate getting the lowest payment. Everyone traditionally assumes lowering the homes purchase price or buying when current interest rates are lower are the only options, and though a portion of that is important, there are many ways to be creative on getting the lowest payment (short-term and long-term). SO DON’T BE A LAZY BUTT AND INSTEAD GET CREATIVE!

Let us dive into this topic a little more. Here are seven ways to help lower your mortgage payment when you are looking at a home:

1. Using Seller Money to Buy Points or Temporary Interest Rate Buy-downs – One of the easiest ways to lower your mortgage payment is using what are called “seller credits” to not only lower your closing costs, but to actually lower your interest rates.
   • How do seller credits work? Let us say you are looking at a house that is listed for $400,000 but you think you can get the home for $390,000. For a general example, purchasing that home for the $10,000 less would likely change your mortgage payment (on average) around $55 to $60 a month.
   • Now, that is still a lower payment than buying at full purchase price, so that is still good in this conversation. But if we had you offer the $400,000 and ask for $10,000 in seller paid closing costs instead of $10,000 less in purchase price (the seller still nets the same amount, you just use the $10k for credits), we could permanently buy-down or temporarily buy-down your interest rate (or you could use the funds to cover your closing costs and other pieces).
   • In this same scenario (30 year mortgage, $400k purchase price, 5% down payment), if you used that 10k in credits to buy down your interest rate, permanently, that could get you almost 1% lower in interest rate (depending on the interest rate market). That lower rate example would drop your payment (in this example) around $220 a month. I’m not sure how good you are at math, but that is almost 400% (roughly) lower in payment than dropping the purchase price by the same dollar figure. So, if your goal is a lower payment, this direction is much more effective.
   • What about a temporary interest rate buy-down? First, let me give you an example of what that is. Temporary interest rate buy-downs mean that instead of buying down your interest rate for the life of the loan, you buy the rate down by a larger percentage, but only for a few years. This is very helpful for people who know their income is going to increase rapidly, or for people who are anticipating being able to refinance not too far down the road, because the temporary payment drop is likely all they need. A common temporary buy-down is called a “2-1 buy-down”. That just means that the first year you have your mortgage, your interest rate is 2% lower than the interest rate you lock in with your lender, and the second year of the mortgage your interest rate is 1% lower than the rate you have locked in (get it, a 2-1 buy-down). In this same example as above, your first year’s payment would be $482 a month lower. OHHHH YEEEAAHHH. That can be very helpful for people. Then the rate would slowly go back to the rate you originally locked in at year 3.
   • Depending on the direction you go with your credits and negotiations, you can both do a temporary interest rate buy-down and a permanent interest rate buy-down at the exact same time, getting the best of both worlds. So, keep the seller credits at the top of your mind, no matter how cool it sounds to offer a lower price.
2. Non-Traditional Mortgages, such as Adjustable Rate Mortgages – Now a-days people have an internal freak out and butt clench when they hear terms such as adjustable rate, interest-only, balloon payment, and others, and for good reason (history has told us). Did programs such as adjustable rate mortgages contribute to negative events like the 2007-2008 housing market crash? The answer is yes, but with adjustable rate mortgages, in particular, it was only by a small extent. What really was the major culprits to the crash were lack of oversight and management to the entire housing industry, which led to overbuilding, over-lending, lack of verification and underwriting, and more. But people should still be cautious in understanding the terms of any mortgage program they may use that could have an adjustable rate at any point down the road. Regardless, depending on the interest rate market and investor appetites, adjustable rate mortgages can still be very safe options with the added benefit of sometimes having lower initial interest rates. Talking with your mortgage lender about the availability of adjustable rate programs and the differences they have in their initial rates can sometimes lead to noticeable savings in your payment. Again, just make sure you understand the terms of the program so you can safely plan your future payments. Also, if you do think mortgage rates may be going down in the future, it do not really matter if you have an adjustable rate. If your rate goes to adjustable, and mortgage rates are falling, then you have the benefit of having your interest rate go down without you having to refinance or do anything different.
   • One side note, to help with releasing your clenched backside, Midwest Money Mentor has adjustable rate mortgage programs currently on the real estate I own. That does not mean I am suggesting that you need to or should look at using adjustable rate real estate financing, but if I feel comfortable using them for my real estate scenarios, that does hopefully suggest that they should not be an automatic “No!” in your mind. Keep yourself open to options to make sure you are putting yourself in the best spot.
3. Gift Funds From Family – One of the most helpful ways to lower your monthly mortgage payment is to have family (or others that we will discuss below) gift money for you to be able to use towards your down payment, your closing costs, and your interest rates. Though this will not be available to everyone who buys a home, if you do have a family member (or more than one) that wants to help you with purchasing a home, using their funds to help with lowering loan balances or interest rates can be very beneficial (especially towards interest rates – as mentioned above).
4. HomeFundIt Crowdfunding Program (and Lender Grant) – one of the tough things about getting gift funds is that the majority of traditional mortgage programs often only allow you to receive gift funds from direct family members (think brother/sister, parents/grandparents, son/daughter). But, many people have employers, friends, extended family and others that would like to help out with a home, even if it is just small amounts they help with (think wedding gifts, graduation gifts, and others). In comes the only crowdsourcing program of its kind, Homefundit (quick note, I do have a bias towards this program due to where I work). Go to Homefundit.com and watch the videos, etc. This program allows you get get gifts from almost anyone for a home purchase (event to be used to the same extent of a GoFundMe page). On top of that, there is the UP-IT benefits. What are those? that is where, if you or your friends/family shop for your/their groceries or any other expenses you/they need, they can do it through your HomeFundIt website. If they do that through the HomeFundIt website, then those companies you buy through (Walmart, Target, and more) actually give you money back off you purchases, towards your down payment, closing costs, and interest rates. And, if you are a first-time homebuyer, the lender can likely give you a grant for more money. Obviously, using these free funds to put more money down, lower your interest rates, etc. can be a big boost to lowering your payments and costs.
5. State Housing or Other Down Payment Assistance Programs – Depending on the state and location you live, there very likely could be programs available for you to use that are unique to your area. These programs almost always have income limits and other requirements in order to qualify to use them. But if you can qualify, it may be advantageous. Often these programs do have slightly lower interest rates, so if you can combine one of these programs with some of the other tools/options we discuss in this post, you can improve your payment situation nicely. If needed, many of these programs also can help with down payment loans, but just make sure you understand the terms of paying back those loans (if applicable) and if they will increase your payment significantly.
6. Shopping Homeowner’s Insurance Companies – This one is pretty simple. Many people do not shop their homeowners insurance. They just go with the insurance company they already use for their car or whatever. Insurance companies can have widely different premiums for the same property, so you need to get quotes from a few different companies and see who has the best premiums (AND ALSO GOOD COVERAGE – don’t just go by premium). I’ve seen people save a couple hundred bucks a month by just shopping around. So, don’t just settle for what is easy. Check around for the best scenario for you.
7. Refinancing– Finally, though this does not impact your purchase payment, it is still worth noting. After you close, you can watch interest rates for refinance opportunities. We go into refinancing and what you should watch out for in another post, so I will not go into too much detail here. Just make sure you pay attention to the mortgage rates over time and you may have opportunities to save some money, with the right situation. Just make sure it actually is the right situation.

Hopefully these ideas are helpful for you. Continue looking into the other posts are all the major home buyer topics to prep yourself for the best position you can put yourself in, possible.