It’s important to choose the right mortgage, if you’re considering buying a new home. You probably have lots of questions about mortgages and the mortgage process. When is the best time to get a mortgage? What type of mortgage should you get? How you know how much you can afford? What’s the best mortgage company? These are some of the most common mortgage questions. No worries, this article has lots of information to help you better understand mortgages so you can make an informed decision.
A Down Payment Can Make the Process Easier
A down payment is an outlay of cash you pay in addition to the mortgage loan. The down payment can be used to afford a bigger house or to reduce the amount of money you borrow for your home purchase. There are some lenders who accept as little as 3.5% down payment, but the more you pay, the better. Paying a minimum of 20% down increases the amount of equity you have in the home and eliminates the private mortgage insurance requirement.
Consider Housing Programs
Between lenders and the government, there are many programs that can help homebuyers a new home loan. You maybe able to refinance your home even if the value has dropped and you’re upside down in your loan. Refinancing your mortgage would allow you to lower your monthly payment so that it’s more affordable. Being able to afford your mortgage could make it much easier to manage your finances.
Consider Any Extra Costs
Before you refinance your mortgage, look over your paperwork to confirm there are no penalties for prepayment. If there is a penalty, it doesn’t mean you can’t proceed. But, you have to carefully consider whether the benefits of refinancing outweigh the prepayment penalty. In some cases, it may make sense to keep your current mortgage rather than incur a penalty.
Be Careful With Adjustable Rate Mortgages
When mortgage rates are low, adjustable rate mortgage are often easier to qualify for. However, when the mortgage rate adjusts, the monthly mortgage payment increases and could become unaffordable. If you decide to go with an adjustable rate mortgage, keep up with your adjustment periods and always leave room in your budget so you can afford the increase.
Consider What You Can Afford
It’s important to know, for yourself, how much you can afford to pay for a mortgage each month. Your mortgage lender may approve you for an amount based on your credit and income qualifications, but that amount may be outside your budget. It’s better to get a mortgage you can uncomfortably afford now and then upgrade your house later than it is to take on a mortgage that barely fits within your budget. You should be mindful of additional costs such as PMI that can increase your costs.
Avoid Interest-Only Mortgages
As you’re shopping around for different types of mortgages, you may come across an interest-only mortgage. This type of mortgage is relatively easy to afford in the beginning because you’re only paying interest. However, there may be a lump sum payment due within a few years. At that point, you’ll have to pay off the full balance or refinance into another type of mortgage.
Keep Up With Mortgage Rates
Mortgage rates are constantly changing. It pays to keep yourself aware of the changing rates and you can easily do this right over the internet. Pay attention to the rate trends. If you notice rates are going up, it may be a good time to go ahead and lock in a rate. That way, you can get the most affordable mortgage possible. Also, you should get yourself familiar with mortgage points and understand how that can lower your mortgage rate.
Shopping around for a mortgage isn’t as difficult as it seems. It’s important, however, that you not rely solely on what the lender tells you. Educating yourself on mortgages and the mortgage process is the best way to be sure you’re making an informed decision.