Purchasing a home is a great financial milestone, wouldn’t we all agree on that? It can be quite a confusing process – especially for first-time buyers. Choosing the right type of mortgage loan is one of the most important aspects of home buying. There are so many options to choose from which makes it a little difficult to find an affordable loan that meets your financial criteria.
Let’s start here: ask yourself “How much can I afford?” Once you take into consideration any and all debts, your credit score, income, along with other monthly bills, you can kind of estimate the terms of your mortgage.
These next four important questions are ones to consider when deciding which mortgage works into your lifestyle:
- Should I consider getting a fixed- or adjustable-rate mortgage?
- How much am I going to pay for closing costs?
- Are there any special programs I might qualify for?
- What is a reasonable amount that I should put down?
1. Should I consider getting a fixed- or adjustable-rate mortgage?
To start, mortgages come in two forms: fixed-or adjustable-rates.
Fixed mortgages lock you into a consistent interest rate that you will pay for the entire life of the loan. The portion of your mortgage payment that is geared towards the principal plus interest stays constant throughout the loan life. But, insurance, property taxes, and other costs may fluctuate.
Adjustable-rate mortgage (ARM) on the other hand fluctuates over the lifetime of the loan. Usually, an ARM begins with a period anywhere from ten, five or even one year; which is the time where your interest rates hold steady. The downfall of this is that the bank changes the rate based on an interest rate index.
ARMs usually offer lower introductory rates, so it is really attracting to a lot of homebuyers but don’t lose sight of the probability of it going up after the intro period. It is a lot to take in, but you have to be sure you’re aware of the chance of your monthly mortgage payment rising substantially in the future. As you continue to figure out how to get the best mortgage rate, use the mortgage calculator that will give you more insight into different monthly payment amounts with different rate scenarios.
2. How much am I going to pay for closing costs?
Generally, closing costs amount to 3% of the purchase price of the home. These closing costs are paid at the time of the finalization of the purchase. Closing costs consist of many fees that are charged by the lenders, including underwriting and processing charges, title insurance fees, along with appraisal costs.
Some Squeezers, just like you, have shopped around in the past to find lower rates among our trusted vendors to find the best mortgage rates. The ultimate goal is to save money on your monthly mortgage and associating fees.
3. Are there any special programs I might qualify for?
There are quite a few programs you may be eligible for that make home-buying less expensive.
- VA loans: The VA loans are for those who are active military or veterans, whether you or your spouse, qualification may apply. These loans offer low or sometimes even no down payment along with other protections if your mortgage payments fall a little bit behind.
- FHA loans: With the FHA loans, open to most U.S. residents, there may be a low-down-payment. Many first-time buyers find this loan very popular because they require as little as 3.5% down and they are also more forgiving of low credit scores than other traditional lenders.
- USDA loans: This loan applies to those that live in a rural area, they offer low- or no-down-payment mortgage and assist with closing costs. Similar to the VA loans, USDA loans can also offer help if you fall behind on your monthly payments. Check your eligibility here.
- First-Time Homebuyer programs: Is this your first home purchase? Check out the HUD website for insightful information along with a list of homebuyer assistance programs in your state.
4. What is a reasonable amount that I should put down?
If you don’t know already, a lower down payment ultimately leads to a higher interest rate which means paying more overall. A reasonable amount to put down is 20% of your home’s value. If that is not possible, there are also many lenders that will accept a down payment of 5% of the purchase price.
Be aware that low-down-payment loans often require private mortgage insurance; which adds to your overall cost along with higher interest rates. With that being said, put down as much as you can while maintaining enough for any unforeseen emergencies that may need immediate assistance. All of our trusted lenders will reiterate the same, to find the best mortgage rate it’s all about the more money you put down which gives you a lower rate.