Stage 1 — Exploring Your Mortage Option
The Three Elements that Make Up a Mortgage
No two mortgages are exactly alike.
However, each one has three main elements you should consider when it’s time to figure out the best alternative for your needs: the type, the rate, and the term.
You want to make an informed decision and choose the right mortgage for you?
Then you need to understand these elements and how they interact with each other!
Loan Type:
Mortgages vary depending on where they come from.
A lending agency? Maybe a private investor? Are they government backed?
Depending on the type of mortgage you get, you’ll also have to deal with widely different characteristics, such as the timeframe and amount you’ll be financed for.
Here are a few popular types (especially for those without pristine credit!):
- FHA Loans: FHA loans tend to be the easiest to qualify for. They have low down payments and credit score requirements. However, they can end up costing you more in the long run if you aren’t paying attention due to pesky mortgage insurance. FHA loans are insured by the Federal Housing Administration, meaning that the lender is protected in case you default on the loan. You’ll need to find an FHA-approved lender to get one of these.
- USDA Loans: the Department of Agriculture finances USDA loans. Ideal for people without enough savings to cover the down payments, USDA loans can offer up to 100% financing! One significant condition though, is that the property you intend to buy has to be on a USDA-eligible area. That being said, many of these qualified areas aren’t traditionally thought of as “rural” by most people, for example, the outskirts of Austin, TX.
- VA Loans: VA loans are exclusive for veterans, eligible surviving spouses, and some active-duty members of the military. If you meet the qualifications, VA loans can be the perfect way for people with low credit scores to buy a home. They can offer as much as 100% financing, and do not require you to pay for mortgage insurance.
- Down Payment Assistance Programs: Down Payment programs can be found all across the country.
They are designed to help people cover down payment and closing costs. If you meet the qualifications, Down Payment programs can be combined with other types of loans (for example, an FHA loan) and give you access to 100% financing!
Rate Type:
Once you understand the different types of loans, you can move on to rate types, the second big things to keep an eye on when comparing mortgage alternatives.
They come in two flavors: Fixed and Adjustable.
Which one’s better? It really depends on your financial situation and long-term plans.
- With fixed rate loans mortgages, your interest rates remain the same for the entirety of the loan’s life.
Choosing a Fixed rate loans will keep your month-to-month mortgage payments consistent and predictable throughout the duration of the loan.
Fixed rates loans are ideal for homebuyers looking to stay a long time in their new home, and those who prefer predictable payments for budgeting reasons. - With adjustable rate mortgages, your interest rates remain the same over the first 5 to 10 years (depending on your type of loan) and then start to adjust once per year according to the market.Adjustable rate loans tend to offer lower rates than their fixed counterparts.This makes them ideal for homebuyers planning to refinance or move from their home faster than what a fixed rate loan would allow.
Mortgage Rates Today
If you are serious about buying a home, you need to keep tabs on how the market rates are behaving. And yes, we’ve got your back on that too! Just Click Here and check the mortgage rates today with our handy app.
The Term:
“Term” refers to the length of the loan.
The most common term lengths are 15 and 30 years, with 30 being by far the most popular. Some loans offer even longer terms (40 or even 50 years), and some provide shorter periods (10, and very rarely 8 years) but both types are rare.
- Longer Terms Mortgage Benefits: Longer term loans help you keep monthly payments low, which can free up cash you can use for home improvements, savings, or other projects.
- Shorter Terms Mortgage Benefits: Shorter terms usually translate into lower interest payments. You also get the massive benefits of paying your mortgage sooner, which builds your equity faster.
Mortgage terms can end up influencing how much you’ll end up paying the most. Keeping track of them when comparing loan options is vital.
Putting it all together
As you can see, there are a few things to keep track of to choose the right mortgage for your financial needs.
Let us help! We can match you with a lender capable of working within your possibilities! Just get in touch and let us work our magic.
