There are many home loans available to future homebuyers. If buying your first home, the process can be a bit overwhelming. Fortunately, there are people in place to help smooth the process, and assist you with selecting the best home loan program. The type of home loan chosen will either save you money, or cost you thousands throughout the duration of the loan. Moreover, seemingly good mortgage loans may have long-term negative consequences, Hence, it is important to obtain the best mortgage. Consider the following tips for choosing a good mortgage.
Adjustable Rate, Fixed Rate Mortgage, Interest-Only Options
For the past five years, mortgage rates have been low. Therefore, most homebuyers are choosing fixed rate mortgages. However, adjustable rate mortgages continue to be popular because they offer initial low rates. While tempting to choose an adjustable rate, it is important to consider the risk. If your mortgage loan does not include a fixed rate, when mortgage rates begin to rise, this will affect your monthly mortgage payment. To avoid sudden surprises in the future, avoid the temptation of acquiring a cheap rate, and choose a fixed rate mortgage.
In many markets across the country, rising home prices has forced many first time buyers to obtain interest-only home loans. Even though these loans are risky, many people are unable to buy without this option. The concept surrounding interest-only loans is interesting. For a designated period, homebuyers make interest-only payments. Interest-only periods range from three to ten years. At the conclusion, buyers begin making payments to reduce the principle. Initially, interest-only home loans offer lower monthly payments. However, low payments are temporary. Those selecting this option should be prepared for a signifant mortgage increase in upcoming years.
Do You Have a Down Payment?
Traditional 20 percent downpayments required for buying a home loan are practically non-existent. Nonetheless, it is suggested that homebuyers save at least 3 percent for their home loan. If unable to save for a downpayment, discuss this with a mortgage lender. There are several home loan programs intended to assist with downpayments. Typically referred to a 100% financing, zero down home loans, and piggyback loan, buyes can purchase a home with little upfront cash. In addition, many home loans programs offer 103% financing, which helps meet the expense of closing costs or home improvements.
Good Credit or Bad Credit?
In addition to choosing an interest option and funding downpayment, buyers must also consider their credit standing. Persons with good credit have better odds of obtaining a home loan. Moreover, the pool of available lenders is huge. On the other hand, if you have poor credit, choosing the right lender is essential.
Prior to applying for a home loan, contact all three credit bureaus and obtain copies of your credit report. It would be a good idea to improve credit before buying a home. However, this is not required. Bad credit lenders or sub prime lenders strive to help all people get approved for a mortgage. In fact, these lenders are able to help persons with credit scores as low as 580. If seeking a good sub prime lender, contact a mortgage broker and discuss possible options.