The following checklist was originally published on my real estate brokerage website, JamesOrr.com, for my clients. At one time I offered them a strong guarantee that we'd get them the lowest monthly payment using the following checklist or I'd pay them money if they had a way to get a lower monthly payment.
It is important to realize that not all of the strategies listed below are applicable in every case. In fact, some strategies are very rare and will hardly ever be used. However, I strongly encourage you to use this as a great starting point checklist of possible strategies that might apply to you and your situation and be selective about which you might apply.
If you have questions about any of the points below, you can click through to get more detailed information on each section or post a comment below.
How to Minimize Your Monthly Payment with Your Lender
Discuss the following strategies with your lender as early in the process as possible for minimizing your monthly payment. You may want to talk to more than one lender as different lenders have different loan programs and will answer these questions differently resulting in different monthly payments for you.
- How much will my payment be reduced if I put more money down and lower the amount I am borrowing?
- Will putting more money down also reduce my interest rate?
- How much do I need to put down to reduce my interest rate?
- Can I put even more down to reduce my interest rate even more?
- What will my monthly payments be at the reduced interest rate?
- With the loan program we are thinking about using, can I ask the seller to pay closing costs? Loan costs? Which ones?
- Can I ask the seller to pay points to reduce my interest rate? How much does the seller need to pay and how much will it reduce my interest rate? What will that mean for my monthly payment? Are these short term buy downs? Can I do permanent, long term buy downs?
- Can I do a longer term loan to reduce my payment?
- Can I do a shorter term loan to reduce my interest rate? Will that ultimately lower my payment or raise it? It usually raises it.
- Can I get a lower interest rate if I am willing to do an adjustable rate mortgage? What will that do for my monthly payment?
- If I got the seller to carry back some owner financing, could that lower my loan to value with you and reduce my interest rate? What would that do to my payment?
- If I did an interest only loan instead of an amortizing loan, would that lower my payment? This can have negative side effects.
- If I did a negative amortization loan, would that lower my payment? This can have significant other negative side effects.
- Is there anything I can do to improve my credit score (short term or long term) to get my interest rate lower? Is there something I could pay off? Is there an account I can close? Is there an account I should open?
- If I sign up for automatic payments will that reduce my interest rate?
- If I have another account with the lender will that reduce my interest rate?
- Can I lock my interest rate now and reduce it if interest rates go down between now and when I actually get my loan?
- Can you buy the one with the help of a family member of friend to lower your interest rate?
- If more than one person is buying the home, can you remove one person from those buying it that is bringing your interest rate or ability to lower your payment down? Maybe, with the help of your attorney you can make arrangements for them to own the home with you after the purchase.
- Can I use a partner to buy the home with me or for me?
- If I use another lender that has lower fees and you’re rolling these fees into your loan, using a lender that has lower fees may lower your overall monthly payment.
See also How to Minimize Your Monthly Payment with Your Lender for more detailed information.
How to Minimize Your Monthly Payment Using Other Property Your Own
- If I own another property with equity, would it lower my monthly payment for me to do a “cash out” refinance on that property to buy this property?
- If I own another property, would it lower my overall monthly payment if I do a “cash out” refinance and use that money as a bigger down payment on this property to get a better interest rate?
- If I own another property, would it lower my overall monthly payment if I do a “rate and term” refinance on that property to lower that payment before buying this property?
See also How to Minimize Your Monthly Payment Using Other Property Your Own for additional detailed info.
How to Minimize Your Monthly Payment When Searching For Homes To Buy
- Ask James to send you the list of homes where the seller has said they’d be willing to pay Seller Points/Buydown to reduce the payments on the loan.
- Buying less home means you need to borrow less, so consider looking at homes in price ranges lower than what you maximum is to minimize your monthly payments.
See also How to Minimize Your Monthly Payment When Searching For Homes To Buy for additional detailed info.
How to Minimize Your Monthly When Making Offers to Buy
- Even if the seller has not said they’d be willing to pay seller points or buy down the loan, some may be willing if we ask when making the offer. Ask James (with the help of your lender so we know the actual interest rate you can buy down) to work through the math with you.
- Offering less than asking price is one way (although not always the best way) to reduce your monthly payment.
- Asking for seller to pay points and/or seller to pay closing costs may also reduce your monthly payment. This can often be more significant in terms of monthly payment savings for the same dollar amount than getting a reduction in price.
- Is the seller’s loan assumable and at a better interest rate than you could get from traditional loans now?
- Are you able to wrap the seller’s existing loan and get a better interest rate than traditional loans now?
- Can you buy the home subject to the existing financing?
- Can you buy the home on an installment land contract at an interest rate lower than traditional financing?
- Can you bring in private financing?
- Consider paying closing costs out of pocket instead of financing them.
See also How to Minimize Your Monthly When Making Offers to Buy for additional detailed info.