Ways to Save Money on Your Mortgage

Mortgage

It is a truth universally acknowledged, that unfortunately house prices are rising. And it looks like they will continue to rise for the foreseeable future, so is the predicament we’re in. With this in mind, knowing a few moves in order to gain a bigger mortgage. If you’re thinking about buying a home, there are things you can do to convince your bank or lender that you deserve more borrowing power. Read on to see our strategies for getting a bigger mortgage. 

Show any additional income

If you have any proof of additional income, it can go a long way to getting you a bigger loan, since you are proving you can repay them. But before you go storming into the boss’s office for a raise or to quit for a higher paying job, calm down. These tactics can be helpful, but if you don’t fancy that, there are other things that are considered additional income. 

You can show proof of interest or dividends from investments, income from rental properties, alimony or child support, social security income and money earned from a part-time job or a side business. These are all considered reliable income; however, the latter comes with the stipulation that you have to have earned enough from your job or side business for over the past two years. 

Pay off any debt

Any debt clogging up your account will hinder the size of the loan you’re looking for. When you apply for a mortgage, a lender will look at your debt-to-income (or DTI) ratio, which is the percentage of your monthly income that you are dedicating to your minimum monthly debt payments. A DTI ratio of less than 36 per cent is usually considered ideal but some lenders are comfortable with going higher. Without debt, lenders will be more comfortable lending you, knowing that you can repay and that you haven’t got other loan priorities.

Credit card debt or an installment loan getting paid off can make a big difference in your DTI figure. If you have the money handy it can be a quick and easy way to increase how much of a mortgage you qualify for. If you can’t pay it all off in one go, you can reduce it with a balance transfer card or you can refinance an auto loan to lower your payments. There is also the option of consolidating your debt into an installment loan. 

Raise your credit score

A slightly larger loan can be obtained with a lower interest rate, and you can get a lower interest rate by getting a higher credit score – but only to a certain extent. 

There are a number of ways to raise your credit score. Check your credit reports and stay on top of your payments. Avoid applying for new accounts if you can. These can all help you in raising your credit score. There are also self-reporting mobile apps you can take advantage of like Experian Boost and UltraFICO. You should add accounts with positive payment history to the app, boosting your score.

Put down at least 20 per cent

Most banks and lenders will add private mortgage insurance (or PMI) to your loan, which you can bypass to get a bigger loan with a large enough down payment. PMI protects the lender if you stop paying your loan. 

So, if you’re applying for a home loan like a DBS Housing Loan and your down payment is over 20 per cent of the house’s price, the PMI will be waived and you won’t need to pay it. Without at least 20 per cent in down payment, the PMI will become part of your monthly costs and will decrease the size of the loan available to you. If you have the cash after your 20 per cent, you can pay a little more to your lender to lower the rate of your interest which will help with monthly repayments.

Add a co-borrower

One thing that can go a long way to convincing a lender that you deserve a bigger loan is a co-borrower. A co-borrower with strong credit and a steady income will reassure the lender that there are various incomes contributing to the mortgage and therefore a backup if something were to fall through. You and your co-borrower’s income will increase the total income that a lender can use to qualify you for a loan. 

Co-borrowers can be spouses, domestic partners, friends, or relatives, but they should all be warned it is not just a name on a piece of paper, but a financial agreement. It is for people of both parties to get their name on a property and to agree that they will share the responsibilities of paying back the loan.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.