Which Type of Mortgage Is Best for Me?

This is an important question for all home buyers, but especially those who are buying for the first time.

Everyone’s situation is different, so answer this question with the following information:

How long do you plan on owning the property? If you plan on staying for three to seven years, you have alternatives to the traditional thirty-year mortgage. These include adjustable-rate mortgages (ARMs) and some type of balloon loan, both of which normally have lower rates than the fixed-rate thirty-year products. But note that they also may have downsides, so do your research.

Also consider whether your plans are likely to change. If you’re unsure, you may be better off with a thirty-year fixed product. Otherwise, when you have to refinance three to seven years later, you may find that interest rates are significantly higher than they are today.

How much are you able to put down on a property? The more of a down payment you are able to put down, the better the position you’ll be in. If you can make a down payment of 20% on a conventional (Fannie Mae) loan, you can avoid mortgage insurance, eliminating a factor that will add to your overall cost of owning the mortgage. If you choose an FHA loan, the size of your down payment is less important, as you’ll most likely have two types of mortgage insurance in any case.

Do you want a fifteen- or thirty-year loan? A fifteen-year loan, while it often offers a lower rate than its thirty-year counterpart, comes with a significantly higher monthly payment. However, if you can afford it, you could save thousands (if not tens of thousands) in interest over the life of the loan. Another option is the twenty-year mortgage, which will also accelerate the paying down of the mortgage. Your mortgage professional can help you decide which term is best for you.

Top Three Financing Tips for Home Buyers in the New Year

With the new year upon us (along with the lure of spring house-hunting season) your to-do list may include the purchase of a new home.

If so, there are a few important things you should bear in mind as you start your search.

Consider these tips from financing professionals:

Know your credit profile. Nothing is more important than your credit profile in qualifying to purchase a home. A good profile puts you ahead of the game. Talk to your mortgage professional to see what you need to do, if anything, to put you into the ideal home financing position. This may include paying down – or paying off – debt. This may take time, so the earlier you can get input from your mortgage pro, the better.

Know what you can realistically afford. Before starting the home-buying process, establish what you can afford now, and most important, what you may be able to afford should family, interest rates, or employment status change. Having a clear picture of what you are able to pay for housing, month-in and month-out and under various scenarios, is essential so you can confidently proceed with the home-search process.

Be patient. Chances are the purchase of a home is the most important decision you will ever make, especially if you’re a first-time buyer. There are many steps on the path to home ownership, and obtaining financing is just one part of all of this, albeit one of the most important. Take everything one step at a time, be patient, and all will fall into place.