When it’s time to buy a house, the biggest decision a person will make is not which house to buy – it’s which mortgage to get. This is crucial because it impacts how much they’ll pay over the life of the loan, whether they can save money on the down payment, and a number of other details that impact their finances., It is crucial to take the time to look into the different mortgages to find the right one before applying for one and buying a home.
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Know the Types of Loans
There are many different types of mortgages, so those who need a loan will want to make sure they choose the right one. Some of the main types of mortgages available today include the following.
- Conventional – A conventional loan is not backed by the government, requires a very good credit score, and typically requires a higher down payment to avoid paying for private mortgage insurance.
- FHA Loans – This loan is backed by the government, which means the credit score requirements are lower and lower down payments to help buyers who might not qualify for a conventional loan.
- VA Loans – These loans are for military service members and they have no required down payment as well as lower closing costs and better interest rates.
- USDA Loans – USDA loans are also backed by the government and designed to help with homeownership for low-income buyers, so they have lower down payment and income requirements.
- Jumbo Loans – These loans are for amounts that exceed what can be borrowed through a conventional loan and are designed to help those who want to buy a larger or more expensive house.
Fixed Rate Vs. Variable Rate
Loans can be fixed-rate, which means the interest rate stays the same throughout the life of the loan. They can also be variable-rate, where the interest rate can change after a set amount of time. Most borrowers will prefer a fixed-rate loan, as this gives them the ability to predict the mortgage payments since they will stay the same year after year.
Consider the Length of the Mortgage
The length of the mortgage can vary, too. The most common options are the 30-year or 15-year mortgage, though other lengths are possible, too. Many people choose the 30-year mortgage, as this offers lower payments each month to make homeownership more affordable. However, those who can pay a little bit more each month may prefer a 15-year mortgage, as this allows them to pay off the mortgage faster and save a significant amount of money on interest.
Check Qualifications
Before taking the next step, buyers should check their qualifications. They may qualify for one type of loan, but not another. If they’d like to qualify for a conventional or jumbo loan, they may need to take steps to improve their financial situation, such as improving their credit score, so they have a better chance of being approved. Talking to a lender can help them determine what they need to do, if anything, to be approved for the type of mortgage they want.
If you’re ready to buy a home, take the time to review all of the details of your finances and to see what type of mortgage will be the right option for you. Doing this can help ensure you’re able to buy the home you want and that you can save as much money as possible on the life of the loan.
