What’s The Best Mortgage For Buying A House?
A mortgage is a loan used to purchase a home. A mortgage carries a specific interest rate, lasts a set number of years over which the loan must be repaid, and can sometimes be transferred from home seller to home buyer.
Why Do I Need A Mortgage?
There are two ways to buy a home. You can buy a home using cash from your bank, or you can buy a home using money borrowed from a lender.
The majority of home buyers choose to borrow.
When a person borrows money to purchase a home, the loan is called a mortgage.
Mortgages have three components:
- The mortgage size, which is the amount borrowed
- The mortgage rate, which is the interest rate at which money is borrowed
- The mortgage term, which is the number of years over which the loan must be repaid
As a home buyer, you get to choose all three figures yourself. You decide how much you borrow; what mortgage rate you get; and, how long you give yourself to pay it all back.
You also get to choose whether the interest rate on your mortgage is fixed for as long as you have the loan, or whether your rate can change.
It’s important to note that there are no loan options that are bad, although there may be some which are bad for you.
For example, it could be bad to shop for a lender’s absolute lowest mortgage rate if that rate is only available to you by paying huge amounts of fees.
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Different Types Of Mortgages
As a home buyer, you can choose the mortgage loan that’s best for you. There are dozens from which to choose.
For example, for first-time home buyers, the FHA mortgage is popular because it allows for a low down payment and flexible approvals.
FHA mortgages are often the “easiest” for which to get approved. However, they’re not always cheapest — that title goes to the VA mortgage.
Available to veterans and active duty members of the U.S. military, VA mortgages are unique in that no down payment is required. Plus, mortgage rates for VA loans are often the lowest available in the market.
This makes the VA mortgage an attractive option for buyers who qualify.
The USDA mortgage also allows 100% mortgages. No down payment is required when using the USDA mortgage to buy a home.
However, like VA loans, USDA mortgages are restricted, based on where you live.
You can only use a USDA loan if the home you’re buying is located in a rural or less-dense suburban area; USDA loans cannot be used in cities.
There are other loan types, too, including jumbo mortgages, conventional mortgages, and portfolio loans — there’s a lot to remember, right?!
Thankfully, there’s nothing you need to memorize.
With just a few basic questions, your choices can be narrowed. This helps you focus on the more important questions of the home buying process, such as: “How much can I borrow?” and “How much does this mortgage cost me?”
You can do this on your own, or choose to work with a professional.
What Is The Best Mortgage?
What’s the best mortgage for a home buyer? The answer is that “it depends”.
The best mortgage for you won’t be the one your best friend would necessarily choose; nor would it be the one your parents would choose.
Mortgage loans are unique. Everyone’s “best mortgage” is different.
To determine which mortgage loan is best for you, you’ll want to know:
- What your credit score is
- How long you plan to keep the mortgage
- How much you want to pay for your mortgage each month
With the answers to these three questions, a mortgage expert can generally point you in the proper direction to get started with your home loan.
You’ll also need to think about how your down payment will affect your household’s emergency reserves.
Life doesn’t always go as planned so make sure to keep at least 6 months worth of cash in a bank account, ready at a moment’s notice.
If you can stash 12 months in reserve, even better.
In general, for home buyers with low credit scores or a low down payment, FHA loans are best.
For buyers with military experience, VA loans usually win.
For buyers in rural and less-densely populated suburban neighborhoods, 100% USDA loans are often a fit, given the right scenario.
For everyone else, there are specialty mortgage products available, each with unique benefits — especially if you work in the public service sector. This includes members of the police force and fire brigade, and teachers.
Find Down Payment Assistance Programs
Can You Get Down Payment Assistance?
There are hundreds of down payment assistance programs available to buyers of homes today.
Some programs give money to buyers for down payments, some reduce your closing costs, and others give no-interest loans.
Ask your real estate agent which Down Payment Assistance Program you can use today.