When it comes to mortgages, there are a variety of options to fit your financial goals and investment philosophies. If you’re wondering what kind of mortgage to pick to fit your financial lifestyle, here are a few things to consider.
You already know you’re walking into the largest purchase of your life, so you’ve done some thinking about whether or not you can afford a mortgage. Most financial analysts suggest that no more than 30% of your monthly budget goes toward housing costs. To get a quick idea of how much home you can afford with various loan terms, use our loan calculator. Consider your goals of monthly saving and investment when looking at the number, not just what you need to pay in obligations every month.
If you’ve had some credit issues in the past or you have excellent credit, this will change what kinds of loans you’ll be eligible to get. Some credit troubles won’t disqualify you from homeownership. Many home buyers with imperfect credit can still qualify for FHA loans but know you’ll be obligated to pay a mortgage insurance premium (MIP). The majority of FHA home loans require an upfront mortgage insurance premium plus an annual premium. The upfront premium is 1.75% of the loan amount, and the annual premium ranges from 0.45% to 1.05% of the average outstanding balance of the loan for that year. Your MIP is paid in monthly installments for the life of the FHA loan if you put down less than 10%. If you can put down over 10%, you’ll pay MIP for 11 years.
If you’ve struggled for seasons with your credit, you’ll have to consider the additional monthly cost of MIP and whether or not you will be able to exceed or meet a 10% down payment.
Is the home you hope to purchase a short-term investment or one for the long haul? How long you intend to live in a home and the current interest rates can help you decide whether to get an adjustable-rate mortgage (ARM) or a fixed-rate loan.
An ARM is a loan with interest rates that can change periodically after the initial fixed-rate period has passed. Monthly payments with an ARM can increase or decrease based on the market. If you are living in the home for a short period, such as five years, the ARM could be a good choice. The introductory rate tends to be competitive. However, borrowers usually want to sell or refinance before the introductory rate is adjusted.
Fixed-rate mortgages are a mortgage with a locked rate that will continue unchanged through the duration of the loan. These loans tend to be harder to get if you have credit issues, and if you do qualify with some credit issues, your rate may be higher than what you’d get with an ARM. These kinds of loans are good for buyers who are looking at a long-term stay or are buying in a time when interest rates are generally low.
Do you want to be debt-free as quickly as possible, or do you like to have space in your budget for various kinds of investments? These are the kinds of financial goals questions that are relevant when considering the potential length of your mortgage.
With a 15-year loan, you’ll be debt-free sooner. A 15-year mortgage also enables you to build equity in your home more quickly. This is helpful if you intend to sell your home before your mortgage is over, or if you need to take out an additional loan on your home. However, a 15-year loan will have a higher monthly payment. Qualifying for one also requires a higher credit score.
A 30-year loan will have a lower monthly payment but cost more over time in interest. Lower monthly costs give flexibility to your budget. You may prefer to use that extra money to pay down higher-interest debt sooner or invest your money in something with a greater yield over time.
Apart from having more money in hand every month, a 30-year mortgage has the benefit of making a property rentable sooner. With lower monthly payments, it’s easier to make a profit from rent right away.
We know every circumstance and borrower is different, so we want to help you pick the right loan for your individual needs and goals. If you have questions about the loan process or the kinds of loans available, contact us. We look forward to helping you get the home you’ve been looking for.
This offer is made by Hartford Funding Ltd. Address 100 Crossways Park Drive West, Suite 302, Woodbury, NY 11797, which is not affiliated with your current lender nor is it an agency of the federal government. Hartford Funding Ltd. is approved by HUD/FHA, Fannie Mae, Freddie Mac, and Ginnie Mae. This is not a government form. This is not a credit decision or a commitment to lend. Hartford Funding Ltd. Company NMLS#: 58160.