When you are thinking about buying a home, how do you know what is the best mortgage for you? Sometimes lenders just tell you to do a conventional or FHA mortgage but don't tell you why!
There are several different types of mortgages from conventional, FHA, VA, USDA and within those, there are fixed rates and adjustable rates! How to choose what is best for you? It depends on a few different things.
First you need to ask yourself some questions. How much money are you putting down? How long are you going to live in the home? What is your credit like? Do you have VA eligibility? Do you have moderate income? Are you a first time homebuyer? The answers to those questions can help you decide what is the best mortgage for you.
Most people are doing fixed rate loans simply because interest rates are so low. And the reality is, that is a great way to go! If you know for sure you are only going to be in the home for a short time – less than 5 years, you may want to consider an adjustable rate and that is something to talk to your lender about. An adjustable rate mortgage can save you money as long as you live there for a short time.
If you have 20% to put down, conventional loans are the way to go. There will not be any mortgage insurance and so it will give you the lowest payment.
If you have less than 20% down, but you can do at least 5% down and you have good credit, you probably want to stay with a conventional loan. The mortgage insurance will be less than FHA and you will be able to eliminate it after you reach 20% equity in the home.
For those that have limited money, you may want to talk to your lender about using a first time home buyer program. If you qualify, there may be down payment assistance to help you get into a home.
For those that are buying in rural areas, look into the USDA program. There is a guarantee fee that is added to your mortgage and a small monthly fee, but it will be much lower than the FHA mortgage insurance and they allow zero down!
Do you have VA eligibility? If so, a VA mortgage is a great way to go – unless you have 20% down. Not all lenders can do VA loans, so ask your loan officer if that is an option for you. VA loans allow for zero down. There will be a VA funding fee that is added to your mortgage but nothing monthly. If you have a VA disability, you may qualify for a reduced funding fee – it may even be eliminated!
FHA is a great program for those that do not have a lot of money and may have had some credit issues. You still need good credit, but you can buy sooner with an FHA loan after a foreclosure, so many peoplea re using this as an option.
Talk to your loan officer and look at all your options. Make sure you know the differences in the interest rates and the mortgage insurance. Decide what program is best for you!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants – Email – Website
