Buying a home is stressful enough but then you add in the mortgage loan. With so many options available, you’ll need to make an informed choice and have a plan for expenses. Choosing the best mortgage for your needs will make the home-buying experience so much more rewarding.
What Can You Afford?
A house is a huge investment and usually comes as a six-figure purchase. If you have good credit, your lender may feel more optimistic about your ability to pay off the loan than you do. However, don’t forget that their job is to sell you the loan and yours is to pay it back. Make sure you leave room for things other than the loan.
Set up a Savings Goal for the Upfront Costs
You’re going to have to make a downpayment and cover closing costs. Both of these can be expensive. The best solution is to set up a savings goal. Make sure you save enough to cushion your down payment.
Consider the Loan Length
You have options when it comes to the length of the loan. With time frames anywhere from 10 to 30 years, you have several choices. Shorter terms will allow you the benefit of less overall interest paid. The length of the loan you choose depends on how much you can afford to pay on your monthly payments. Shorter loan periods have higher payment plans.
Select the Right Type of Loan
There are several types of loan options available. They come tailor-made for different circumstances. If you fall into any of these categories, you should apply for one of these specialty mortgages:
Military members or veterans (VA loans)
Buyers with low credit scores (FHA loans)
Buyers who would like to live outside a city (USDA loans)
Buyers who want a house that is more expensive than standard guidelines allow (Jumbo loans)
If you don’t match any of these categories, then you’re probably best suited to a standard loan.
Understanding Your Loan’s Interest Rate
Interest is inevitable. It’s part and parcel of the loan you signed up for so make sure you understand the interest on your loan.
You’ll have two options to choose from, an adjustable-rate mortgage and a fixed-rate mortgage. Bear in mind that while the interest on a fixed-rate mortgage may be higher than that on an adjustable-rate mortgage, the latter is subject to change and can do so frequently.
Shop around for Lenders
Don’t just pick the first lender you find. Make an informed decision and pick the best lender for your needs. Look for the lowest origination fees. Review at least three lenders before making your decision.
Final Thoughts
Choosing a mortgage loan can be daunting but if you do your research, you can make an informed decision that will benefit you in the future. Choosing the best loan with the right length and interest rate for you will set you up for homeowner success.