The purchase of a home is quite possibly the biggest investment you’ll make in your lifetime, not to mention the huge responsibility that comes with it. So, to be successful in your quest for home ownership, you have to choose a mortgage loan that’s right for you and accommodates your financial needs. For a first-time home buyer, always consider the broad range of mortgage loans that are currently available today. Here’s a 5-step guide that could prove helpful in your quest.
5-Step Guide in Choosing a Mortgage Loan
Step #1: Calculate how much you need to borrow
Before you start applying for a mortgage loan, look at your budget and how much you need to borrow. Once you’ve determined this, look at your credit score and see if it’s sufficient for getting approved for the amount you need.
Step #2: Be prepared to pay additional fees
There are a number of costs involved when buying a home such as closing costs, your down payment, and more. Before you sign a contract, make sure you’re aware of the additional costs involved and plan your home buying budget accordingly. Keep in mind that paying a larger down payment means you will pay less interest over the loan term.
Step #3: Decide on the term of the loan
A mortgage loan involves a long-term commitment but some mortgage loans are available with shorter terms such as 15 or 20 years. However, the shorter the term of the loan, the higher your monthly payments will be.
Step #4: Choose the Best Mortgage Loan for your specific needs
This is probably the most crucial step in the process. The most common types of home mortgage loans include:
- FHA loans
- Jumbo loans
- USDA loans
- VA loans
Before you make any decisions regarding your choice of mortgage loan, we recommend that you do extensive research on the subject of mortgage loans.
Step #5: Determine which Interest Rate is Best for You
This is a crucial factor when you consider how it can significantly impact the size of your monthly mortgage payments. You have two choices where this is concerned:
- ARM’s or adjustable-rate mortgages have interest rates that adjust annually and fluctuate with the bond market.
- Fixed-rate mortgages enable you to lock in on a set rate over the life of the loan.