As you look for the perfect home, you are probably also considering what kind of mortgage you should go with as well. Since not all mortgages are the same, here are some helpful guidelines to keep in mind as you mortgage shop.
Analyze your budget
The first step is to determine what kind of house you can afford. Although it’s tempting to swoon over “dream homes,” cross off options that are out-of-budget. Once you’ve determined what you can afford, you can look at the options that are left and go from there.
Compare loan types
When it comes to types of loans, there are two options: government-backed loans and conventional loans. Again, it all comes down to budget, but Nerd Wallet says, “If you can afford to save up a large down payment and build your credit score while lowering your debt-to-income ratio, a conventional loan is a great choice that can eliminate some of the extra fees and higher interest rates that may come with a government-backed loan.”
Choose an interest rate
If you’re the young and free type, you’ll want to go with an adjustable rate mortgage. These mortgages have a lower interest rate in the early years and get higher over time. This is a good option for military families or young couples who aren’t sure if they’re staying in their home long-term. The benefit of an adjustable rate mortgage is, if you decide to move in a couple years, you’ll have only paid the lower rate.
For those of you who want to settle down for a while and have a more defined sense of what your future holds (already in life-long career, have a few kids, etc.), a fixed rate mortgage is going to be the better option. You’ll pay the same rate month after month, allowing you to easily weave your mortgage into your budget.
There are other factors to consider when shopping for a mortgage including how much money you’re going to borrow, what your credit score is, etc. To some extent, the mortgage you take on is based on things that are somewhat out of your control like the amount of debt you currently have or what your life/job situation is. On the other hand, there are some factors you can control (like improving your credit score) that will land you in a better position. The key is to start from where you’re at, consider what changes you are able to make, and work towards an option that is somewhere in between. If you have any questions about which mortgage is right for you, give First Lenders a call toll free at 800-240-5626.