Buying a home is one of those significant steps in one's lifetime. Whether a first-time home buyer or a repeat buyer, you need a mortgage loan to finance your home.
Deciding which type of mortgage you want takes time and effort. There is so much jargon to decode, checking the mortgage calculator countless times, and comparing the qualifying credit score.
Are you wondering which home mortgage option is best for you?
In this post, you will learn the types of loans available and understand when a particular mortgage loan is the best option.
Let's dive in!
1. What Are the Different Mortgage Loans
Before applying for a mortgage, you need to know which types of mortgages exist.
Let's classify mortgage loans into the following categories to help you understand what to expect:
Conventional mortgages, also known as "conforming loans," are from private lenders or the federal companies Freddie Mac or Fannie Mae. Conventional loans come with different qualifying credit scores depending on the mortgage lender.
Some lenders offer borrowers conventional mortgages based on income. To qualify for a traditional mortgage loan, you must have a good credit score. Otherwise, you can look for government-backed mortgage loans.
The government-backed home loans are less strict than conventional home loan requirements.
However, the federal government does not issue these loans directly. You still go through private lenders to get a government-backed mortgage.
The typical government-backed mortgages include:
2. Figure How Much You Can Afford
Before determining which mortgage is the best option, use a mortgage calculator to figure out how much you can afford.
Lenders with a qualifying credit score are most likely to be optimistic about how much house they can afford.
Remember, mortgage lenders will give you a maximum amount. However, they expect you to pay back within the agreed timelines. Failure to pay a mortgage can lead to foreclosure. Therefore, stick to an amount you can afford to repay comfortably.
3. Consider the Mortgage Loan Length
Mortgage lenders offer varying loan lengths. There are 30, 15, and 10-year mortgage loans. Suppose your budget allows for a more significant payment of a shorter-length loan. In that case, you may substantially reduce the total interest expense over the life of the mortgage.
Therefore, when choosing which mortgage loan is best for you, consider whether the lender offers reduced interest expense over the home loan's lifetime.
4. Understand How Mortgage Interest Works
The interest rate is the price you pay to borrow the money for your home. Mortgage interest rates change a lot, so it helps to understand what interest you will pay for every loan borrowed.
A mortgage calculator helps you estimate what the monthly mortgage payments look like. Mortgage lenders may offer different mortgage rates, depending on your credit score, loan term, and the down payment.
In addition, some loans feature a fixed-rate plan, while others have an adjustable rate.
The fixed-rate mortgage locks in your interest rate for the entire life of your loan. Therefore, you pay the same interest rate throughout the loan's lifetime.
For an adjustable-rate mortgage, the rate changes periodically depending on multiple factors. Consider taking the mortgage with adjustable rates if you plan to live in your home for only a few years. If you are ready to settle down, you may want to consider a fixed-rate mortgage.
There is no correct answer to the question, "Which type of mortgage is best for me?"
The quick answer is that it depends!
No two homebuyers have the same mortgage requirements. Some are concerned about long-term home loans, while others worry about qualifying credit scores.
Visit MortgageWorks for assistance choosing the best home loan based on your unique specifications.
MortgageWorks is a full-service mortgage company based in Palm Springs, CA, serving all of California. Whether buying a home or refinancing, we help you realize your dream of homeownership.