Financial advisors generally recommend spending in the range of 30% of a household’s monthly income on a mortgage payment. Some homeowners have seen their incomes decline in the last few years and others may have budgeted more than 30% for their mortgage payments to begin with. If you’ve found yourself in one of these positions, consider employing one or more of the following tips to get your monthly budget back on track.
Shop Around for a Better Rate
If your rate is above 4%, you may want to shop around for a better rate. You can talk to your existing lender about refinancing or you can shop an online lender like AmeriSave. Online lenders will often have very competitive rates because of the low overhead and operating costs associated with operating a brick and mortar brokerage. Shopping for a rate and locking it in at www.amerisave.com is simple and fast.
Kick Your Private Mortgage Insurance to the Curb
If your original loan was more than 80% of the home’s appraised value when you signed the agreement, then you are paying private mortgage insurance. If you purchase a home for $200,000 with an $8,000 down payment and signed a 30 year fixed loan at 3.25%, then your payment would be approximately $835 per month plus an estimated $180 for PMI. If you’ve lived in your home for a number of years or you feel that the value has increased to a point that the balance of the mortgage falls below 80% it may be wise to try to have your lender cancel out the PMI premium. Most of the time, the homeowner will have to pay for an independent appraisal to determine the current value, but with the average appraisal cost between $400-$600, you would see big savings in just 2-3 months.
Check Into Government Sponsored Assistance Plans
If your current financial situation is making it difficult for you to make your mortgage payments or if you owe more than your home is worth, check into the following programs.
Home Affordable Modification Program (HAMP) – For borrowers who are employed, but are having financial difficulty making payments. You must have obtained your mortgage before January 1, 2009, owe less than $729,750 and have sufficient income to support a modified payment. Read more on HAMP here.
Principal Reduction Alternative (PRA) – For homeowner’s whose homes are worth significantly less than they owe, the program seeks to encourage mortgage investors to reduce the principal amount owed. To be eligible, the same criteria listed above for the HAMP program apply, additionally, the mortgage must not be held by Fannie Mae or Freddie Mac, you must occupy the home as your permanent residence and your mortgage payment must be more than 31% of your pre-tax monthly income. Read more on PRA here.
Appeal Your Property Taxes
If you’re one of the millions of homeowners whose home value has decreased dramatically, check your property tax records to see if your home is over-valued by the county you live in. If you feel the value is over-stated, you can appeal the value to the board of assessors and possibly receive a reduction in assessed value. We can’t speak for every county, but generally you can back up your claims by obtaining a market analysis for comparable properties recently sold in your neighborhood. Backing up these claims with a recent independent property appraisal will make your case stronger. While you’re at it, check the property information card the county has on file. This writer once found that the square footage had been incorrectly recorded by over 1000 sq ft. resulting in a refund of overpaid property taxes for two years!