If you are thinking of buying a house, you are going to need a mortgage! Many of the buyers that I have worked with over the years have lots and lots of questions about how to pick out the right mortgage! And, if you are someone who doesn't look at these things every day, it can be very confusing!
There are some basic questions, of course:
* Do you want a fixed rate mortgage or an adjustable rate mortgage?
* Do you want a 15 year mortgage or a 30 year mortgage?
* Do you have enough to make a large down payment (so you don't pay mortgage insurance) or do you need to go with a minimum down payment mortgage?
But beyond answering these questions, there are lots of other things to consider when choosing the right mortgage for yourself - and, ultimately, the right mortgage lender to help you get the mortgage! After all, not all lenders offer the same mortgage options, or even the same loans at the same interest rate and the same loan fees! So here is a guide to help you decide what is the right mortgage for you!
Do you want a fixed rate mortgage or an adjustable rate mortgage?
I have had some clients who have relocated into the Richmond area that know they won't be here for more than a few years! So, for them, an adjustable rate mortgage (such as a 5 year or 7 year adjustable rate mortgage) is the best choice for them. This means that their interest rate will be low for the first 5 or 7 years before the first adjustment! But if you know you are going to be in Richmond permanently, or you are unsure as to whether or not you will be relocating, then an adjustable rate mortgage may not be the right choice for you! Knowing what your future holds will help a lot when deciding on whether to go with a fixed or adjustable rate mortgage!
Do you want to go with a 30 year mortgage or a different mortgage term?
Most buyers go with a 30 year mortgage because it offers a lower payment, since the principal amount is amortized over 30 years! But lenders will offer mortgages for longer or shorter terms, such as a 15 year mortgage, or even a 40 year mortgage! With a mortgage such as a 15 year mortgage you may have a higher monthly payment, but this is because you are paying more on your principal balance each month in order to pay it off faster, which allows you to build up your equity in the house much faster!
How large is your down payment?
If you are selling a home and buying another home, it is very possible that you will have equity built up in the house that you will be buying! And it may be large enough to allow you not to have to pay mortgage insurance as part of your monthly payment! Or you may have been saving up money to come up with the 20% down payment in order to not have to pay the mortgage insurance! Or perhaps you are able to come up with gift funds to help with your down payment! Perhaps you are a veteran and have VA eligibility - using this allows you to buy a house with no money down and not have to pay mortgage insurance! But, if you are a first time homebuyer who does not have the 20% down payment, you may be looking at having to go with a minimum down payment! This may mean you will be paying mortgage insurance! But there are some options available to you that you will want to explore with your lender!
Do you need down payment assistance or grant funds?
If you are a first time home buyer, there may be some down payment assistance programs that can help you with the purchase! But, there are some restrictions, and there is an income cap. But, if you qualify, this can be a great stepping stone to getting into your first home! Grants can be offered through various non-profits, such as Southside Community, or VHDA, or even Housing Opportunities Made Equal. There may be other grant providers, and not all grants are offered by all lenders in the Richmond area! So if you do need grant money to assist with buying a house, then make sure you are dealing with a lender who can help you with those!
Are you buying rural property?
If you are thinking of purchasing a property in a rural area, then the property may qualify for Rural Development financing! This type of loan offers 100% financing. However, there are income and property eligibility guidelines! Again, not all lenders offer Rural Development loans, but if you meet the income guidelines and the home you are considering is in a designated area, then this could be a great loan for you!
Does your lender offer any special in house loan programs?
I have had several clients who are members of Navy Federal Credit Union who have been able to buy a house using one of the credit union's in house programs that has no down payment and no mortgage insurance attached to the payment! Other credit unions may also offers similar in house loan programs to their members! Fannie Mae offers a Ready Buyer program for buyers, whether you are a first time home buyer or not! With this program, your down payment is only 3% (vs. FHA's minimum down of 3 1/2%) and there is no mortgage insurance! Even Quicken Loans has a program offering a 1% down payment! So check with your lender, or even who you are banking with to see if they have a special in house loan program that could work for you!
Is there a way to compare one loan program to another?
If you decide to talk to several lenders, it can be difficult to figure out how to compare one loan to another to see which one is the best for you! Comparing loans can be like comparing apples to oranges - one may offer a lower rate but higher fees, another can offer the opposite! So just how do you compare one loan to another? Don't just look at the stated interest rate or the payment alone! Look at the Annual Percentage Rate (APR). If you have one lender offering you a loan with a 5% stated interest rate but no costs - is that better or worse than the lender who offers you a loan with a 4.5% stated interest rate, but has about $10,000 in lender costs you have to pay to get that loan! The APR will allow you to look at both of these loans and see which one is the better of the two!
Thinking of purchasing a home? Have questions on home buying or getting a mortgage? Need a referral to a lender? Feel free to contact me - I would be happy to help! Have a great day!