A Suze Orman exclusive

With the average price of a home climbing above $200,000, it's understandable that many home buyers don't have the full 20 percent down payment that lenders want to see. That means more home buyers are getting stuck paying "Private Mortgage Insurance," an added monthly charge that protects the lender if you ultimately can't keep up with your mortgage payments.

Traditionally, lenders would just tack on the monthly PMI as an added cost to your mortgage. More recently, the piggyback loan, where you take out a home equity line of credit to cover the difference between your down payment and the magic 20 percent lenders want to see, has become a popular way to sidestep PMI. But the problem with a piggyback is that as Federal Reserve Chairman Alan Greenspan raises the fed funds rate, the interest rates on home equity lines of credit are going up, which means your monthly payments are going to increase. That’s not good.

My advice is to skip both the traditional PMI and the piggyback and instead ask your lender to roll your PMI into the cost of the mortgage; it can be the least expensive way to land a home when you have less than 20 percent to put down.

The cost of rolling the PMI into the mortgage is typically 1 percent of the mortgage amount, which will boost a $200,000 mortgage to $202,000. On a 30-year fixed rate mortgage charging 6 percent interest, that would raise your monthly cost from $1,199 to $1,211. That’s $12 more a month. If you instead paid the PMI as a separate cost you would be looking at about an $86-a-month charge. So we just saved you $74 a month. And unlike straight PMI which is not tax-deductible, when it’s rolled into your mortgage, the interest payments are deductible.

And I want to slide in another smart home-buying move that can save you big-time money. By now, you all know that your FICO credit score plays a major role in determining the interest rate on your mortgage. If your score is 760 or higher, you’re in line for getting the lowest rate. But if you happen to fall in the next highest range (700-760) I want you to strategize in the two or three months before you intend to apply for a mortgage on how you can boost your score just enough to get into that top range.

One obvious way is to avoid putting any charges on your credit card; remember that a portion of your FICO score is based on the size of your outstanding card balance(s) compared to your total credit limit. So the lower your outstanding balance, the better your debt-to-credit-limit rating will be.

Speaking of credit limits, you might also try calling up the card and asking for your credit limit to be raised. That will help with the calculation too, by increasing the denominator used in the computation. It’s a nifty little trick, but only so long as you don’t fill up that extra spending space with new card charges.

Right now, if you are in the second-highest range you might qualify for a 5.81 percent interest rate on a 30-year fixed rate mortgage. On a $200,000 mortgage that comes to a monthly bill of $1,175. But if you can nudge your score up into the top range, the interest rate could be 5.59 percent, which lowers your monthly payment to $1,147. That’s a savings of $28 a month, or $336 a year. If that’s not impressive enough, consider that over the 30-year life of the mortgage you’re looking at spending $10,000 less just because you were able to nail the lower interest rate!