Your Guide to Finding the Right Mortgage
Finding the right mortgage is important, but it’s not always easy.
You’ll be paying your mortgage for years to come, and deciding which mortgage to go with is a huge decision. The fact of the matter is that there are many options to choose from, and it’s not always easy to know which one is right for your financial situation, especially if this is the first mortgage you’re applying for. Luckily, you have Berkshire Hathaway on your side, and we are committed to helping you make the right decisions during every step of the homebuying process. The following is your guide to finding the right mortgage from our experienced mortgage broker.
Step 1. Determine what kind of mortgage you want to apply for.
The first thing that you’ll need to do is to figure out what kind of loan you want to apply for. There are actually four different kinds of loans to choose from:
Conventional: Conventional loans don’t require private mortgage insurance (PMI), but they also require 20 percent down. Conventional loans are well-suited for those who have the money to cover closing costs and the down payment since they are less expensive on a month to month basis without the PMI.
FHA: FHA loans have backing by the Federal Housing Administration, and they only require you to put 3.5 percent down. However, FHA loans require PMI and not all homes (or applicants) qualify. For people who don’t have a lot of savings for a down payment, FHA loans can be great options.
VA: VA loans are secured by the Department of Veterans Affairs, and they are available to qualified veterans with very little down payment (in some cases no down payment at all).
Jumbo Mortgage: If you are taking out a loan that is more than $417,000 in the majority of the country, you’ll need to apply for a jumbo mortgages. These mortgages are for home loans that exceed the regulation-established loan limits.
Step 2. Determine which interest rate option will work best for you.
In addition to figuring out which kind of home loan will work best for you, it’s also important to consider the interest rate type for the loan. There are two basic repayment terms available to you:
Adjustable Rate Mortgage (ARM) – If you apply for a ARM, you’ll enjoy a significantly lower interest rate on your mortgage for five to seven years, but then it will automatically adjust to the average national rates, which could be much higher than the interest rate you were paying.
Fixed-Rate Mortgage – Fixed-rate mortgages are typically much more stable than ARMs because, like the name implies, the interest rate remains fixed throughout the life of the mortgage. Fixed-rate mortgages are available with repayment terms of 15 to 30 years; shorter terms are more economical because you’ll pay less interest.
Step 3. Determine which mortgage term is right for you.
Once you find the right kind of loan and the right interest rate type, you need to determine which mortgage term is right for you. The mortgage term is essentially how long you’ll be paying for your mortgage, and there are several options to choose from:
30-year term – The majority of mortgages are 30-year mortgages, which means that they will be paid off in full in 30 years. Although many 30-year mortgages are fixed, not all of them are. Some mortgages can even be fixed for a certain amount of years and then adjustable for the remaining years.
15-year term – Mortgages with 15-year terms are less common than 30-year mortgages, but they are still fairly common. Unlike 30-year mortgages, all 15-year mortgages are fixed, and they are a great option if you want to pay your home off quickly.
There are a variety of other term options available, ranging from five-years all the way to 40-years. Longer terms are cheaper on a month to month basis, but are more expensive over the course of the loan because they acquire more interest over the years.
Step 4. Find the national interest rate average.
Before you decide to call a mortgage broker or lender to apply for a loan, do a little research to determine the national interest rate average. Knowing the national average will help you determine if you’re getting a good interest rate or not on your loan. Before you sit down and apply for a loan, it’s wise to get rates from several different lenders on the same kind of loan.
Step 5. Ask about the annual percentage rate (APR) of the loan.
In addition to doing your homework about the national interest rate average, you also need to learn about the APR of the loan. Although many people believe that the interest rate and APR are the same thing, they are actually describe two very different things. APR demonstrates the full cost of the loan, which includes broker fees, the interest rate and all other charges. The APR can help you determine how good of a deal you’re getting on your mortgage; lower APRs indicate better deals.
Step 6. Get your pre-approval and lock in your rate.
After you’ve done all of your homework in determining which loan you want to apply for, you’ll need to get pre-approval for the loan. Once you have pre-approval, it’s important to lock in the interest rate with your lender. This will protect you in the event that the national interest rate average goes up. However, there is a downside. If the national interest rate average goes down, you’ll be locked in at a higher rate.
Are you ready to use your new-found mortgage knowledge to find the right loan for you? Contact us today to get prequalified!
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