Buying a home is a major life decision. However, within that process are many other choices that have a major impact on your future. For instance, the home mortgage you choose is almost as important as which house to buy.
There are many loans available to home buyers which your Door agent can help you choose between. Bank and mortgage companies are always coming up with new and creative products to meet customer needs. The home mortgage you choose can have major financial implications. It is important to educate yourself before jumping in.
The first step is deciding between a conventional or government-backed home loan. A government-backed loan is one guaranteed by the United States government and includes FHA, VA, and USDA loans. First-time homeowners are often drawn to these types of loans because they have lower credit standards and require less of a down payment.
Government-backed loans tend to cost more over time. The lower credit standards and smaller down payments are a higher risk for banks, and this means higher interest rates. Moreover, if you place less than 20 percent down on the purchase of a property, you must buy private mortgage insurance.
As we look further, the next thing to compare is a fixed rate or adjustable rate mortgage. It is very common for new home buyers to select a 30-year fixed rate mortgage. The advantage is knowing exactly what you will pay in interest over the life of the loan, that the interest rate does not change, and that the overall payment stays constant. This is a great option if you plan to stay in the home a long time, and interest rates are good.
The adjustable rate mortgage may give you a better interest rate initially, but it can increase at predetermined intervals based on the interest rates at that time. Many of these types of loans start as a fixed rate for 3 or 5 years and then will change annually. An adjustable rate mortgage is a good option if you are planning to stay in a home only a few years, or if you plan to refinance to a better rate before the fixed term ends.
Another option is seeking either a conforming or jumbo loan. A conforming home loan is one that meets Fannie Mae or Freddie Mac guidelines, specifically in size. Jumbo loans are more focused on expensive and luxury homes, which are difficult to sell and have more subjective values. In order to qualify for a jumbo loan, you must have excellent credit and an above average income.
If you would like to talk more about choosing the right home mortgage as you prepare to buy a home, or need more information, please contact Door.