When buying a house one of the most important things you will do – and the one thing that will impact your home ownership long term – is getting a home loan.
Home loans are not all the same, so it’s important for your long term economic benefit to ask yourself the following questions before you speak to any mortgage lenders:
- What are your goals? Do you plan to stay in the home, or are you buying it as an investment property?
- How much money do you have as a down payment? Is it enough to avoid paying mortgage insurance if required?
- Is the home ready to move in or do you need to renovate it and if so, do you need to finance the improvements?
- What are your life plans? Are you planning to add to your family or start a new one?
- How long do you plan to stay in the area? Will you stay in the home for the next 5 to 10 years or need to move quickly.
- Do you want to be debt free, paying off your loan early?
- How close to retirement are you?
- What is your capacity for risk?
The answers you give to these questions will influence the home loan choice you make.
For example, if you plan to pay off your mortgage early you’ll definitely want to avoid any loan that includes a prepayment penalty.
Now that you have a good understanding of what you plan to do, don’t stop with the first offer you get, shop around for the right loan that will suit your needs.
Following are the most common types of mortgages, including the pros and cons of each loan type.
Once you’ve found one that you think will fit your needs, reach out to an approved Sparks mortgage lender to discuss the best options for your particular situation.
Common types of mortgages
Fixed rate mortgages are just like they sound…the interest rate you pay remains the same throughout the term of the loan, typically for 15 or 30 years.
If a consistent payment is what you’re after and you plan to stay in your home for a long time, then a fixed rate mortgage is a good option.
One thing to keep in mind is that while the interest rate will stay the same, your payments may increase or perhaps even decrease, if your lender has rolled these costs into your mortgage (which is a common practice).
The adjustable rate mortgage (also known as an ARM) will provide a low interest rate for what’s known as the introductory period – typically two to five years.
After the “honeymoon period” is up, the rate can be adjusted according to the terms of the mortgage, depending upon what the market is doing.
As your payments can fluctuate, if you plan to stay longer than the introductory period that’s offered take note of the maximum interest rate that can be charged – it may be higher than a fixed rate mortgage.
Mortgage rates as of the time of this writing have been historically low, so many buyers are choosing fixed rate loans over an ARM.
However, one thing to keep in mind should you go with an ARM – your lender will qualify you based on a lower payment you could buy a more expensive home than if you went with a fixed rate loan.
If you’re unable to qualify for a conventional mortgage, an FHA loan could be the right choice for you.
A Federal Housing Administration (FHA) loan was designed to help low and moderate income households get into the housing market.
Qualified veterans – and in some cases their spouses – can obtain loans with zero down and no mortgage insurance premiums.
One thing to note; the VA has certain requirements for the type of home they will lend money on, so if you’re considering a VA loan, it’s important to tell your real estate agent to avoid falling in love with a home that the VA won’t lend you money to buy.
Tips on getting the right home loan
- Play with a variety of mortgage calculators to get an idea of your payments under a number of different scenarios
- Look at more than one lender to find the best deal for you
- Decide which is right for you; paying points at closing to get a better rate or taking a higher rate to keep closing costs down
- Ask your lender if they can combine features from different loans to create a loan you can live with
- Remember to include costs such as taxes, insurance and homeowners association fees when calculating your payment. Ask your lender if they will be holding these fees in escrow to pay on your behalf.
- Want different terms, such as a 20 year loan? Ask your lender – they have a number of loan programs that they don’t advertise.
Ready to get started on finding the right home loan for your new home in Sparks? Our friendly, knowledgeable staff can help you find the right home loan for your needs. Contact us today to find out more.