Mortgage options: Advice for choosing a mortgage that’s right for you
A mortgage loan is a long-term financial commitment. Here are some things you should know before choosing a mortgage type.
When choosing a mortgage, it’s important to understand the different types and how your monthly payments may potentially change in the future.
Here are a few things you should know about choosing a mortgage:
• Look at the payment, and not what the maximum loan amount is — Just because you can qualify for a certain amount, you should ask yourself what you can afford on a monthly basis.
• Look at what the potential payment could be — Taxes and insurance typically go up over time so make sure that you are still able to comfortably afford your monthly payment.
• Use a mortgage calculator to weigh different mortgage options.
Here are some things you should know before choosing a mortgage type:
Fixed-rate loan — This mortgage type provides a constant interest rate and monthly principal and interest payment for the life of the loan. Some advantages of a fixed-rate loan:
• Easier to budget.
• Protection against rising rates.
Adjustable rate loan — After a set initial period, the interest rate and monthly payment can fluctuate. Some advantages of an adjustable rate loan:
• Typically interest rates of ARMs are initially offered at a discount rate.
• In a low-rate environment, an ARM can save significant money over a fixed-rate mortgage.
FHA loan — Insured by the Federal Housing Administration (FHA). Some advantages of the FHA loan:
• Lower down payment, typically 3.5%.
• Lower closing costs.
• Easier credit qualifying.
VA loan — Intended for veterans and active members of the military. This loan is guaranteed by the US Department of Veterans Affairs. Some advantages of a VA loan:
• No down payment.
Jumbo loan — Above the loan limits set by the government, jumbo loans are also referred to as non-conforming loans. This type of mortgage allows you to make a purchase on a home that exceeds the amount of money you would be able to acquire with a conforming fixed or adjustable rate loan. Some advantages of a jumbo loan:
• If you are able to afford monthly payments, but cannot put down a large down payment, you can finance a loan without making a large down payment.
Diana, a mortgage banker, breaks it down this way: “There’s different loan products and once you find the home the loan officer will explain the best options for you and you can make a decision from there.”
DIANA: It’s not the loan that decides the home you’re going to buy. It’s the home you’re going to buy that’s going to decide the loan you go with. So there’s different loan products and once you find the home the loan officer will explain the best options for you and you can make a decision from there.
BUDDIE: I think when a lot of people are buying a home for the first time you’re looking at what can I qualify for a max amount and that’s where you really start your home search when you really should take a look at what’s affordable and then you should take that into the product that you’re going to choose.
JONATHAN: I guess the biggest thing is making a budget, making sure that you’re comfortable with what that potential payment just because also, taxes and insurance are going to typically go up over time, so you just don’t want to max out. Although you may be preapproved for X amount of dollars, you want to formulate a budget, kind of stick to it.
KATE: There’s a bunch of mortgage calculators out there that you can plug in like how much of a loan you’re going to get, what your down payment was, how much the house was, and then like it will say if you get a 30 year at this rate, how much you’ll have to pay every month. And then kind of just messing with the numbers. Well, what if it’s this rate and its 15, and doing that over time and while being aware of what the actual rates are and plugging those in, it was really helpful.