How to Find the Right Mortgage
Once you have a solid understanding of your home budget and you are preapproved, you're ready to start exploring mortgage loan options.
You will want to reach out to a lender who will guide you through the mortgage process. They will help you understand different mortgage options based on term, type and rates.
3 things to consider when choosing a mortgage
Not all home loans are the same. Your monthly mortgage payment will consist of principal, interest and depending on the terms of your loan, escrow (including taxes and homeowner’s insurance), and private mortgage insurance. Here’s what you need to consider:
1. Loan term
This is the length of time it will take you to repay your loan before you fully own your home. Your loan term will impact your interest rate, monthly payment and the total amount of interest you will pay over the life of the loan.
Long-term mortgages typically have smaller monthly payments, making your mortgage more affordable. Longer terms, like the most common 30-year term, generally come with higher mortgage rates meaning you’ll pay more in interest over the life of the loan.
2. Loan type
There are two basic types of mortgages: fixed or adjustable. Your choice will determine whether your interest rate and monthly payment will change over time.
Fixed-rate mortgages (FRM) lock in one interest rate for the life of the loan. This means your monthly mortgage payment will remain the same for the entire loan term. Because of the payment stability, 90% of today’s homebuyers pick an FRM.
Adjustable-rate mortgages (ARM) have an interest rate that will change throughout the life of the loan. All ARMs have an initial period during which the interest rate doesn't change – ranging from six months to 10 years, but after that period, you’re the interest rate will fluctuate annually based on market conditions. For example, a 5/1 ARM has a fixed interest rate for the first five years. After five years, the rate can change once every year for the remaining life of the loan. ARMs have caps and floors, or a maximum and minimum that the interest rate can change at each adjustment period, as well as over the life of the loan.
3. Current interest rates
Mortgage rates impact your monthly payment and the total cost of your loan. Typically, lower rates mean greater affordability because the accrued interest on the principal is lower.
Mortgage rates are currently remaining near all-time record lows, with the 30-year fixed-rate mortgage averaging 3.2% last quarter. Securing a mortgage at today’s low rates could make a home that was once unaffordable, affordable. In fact, National Mortgage News found that today’s homebuyers can afford 10% more home than they could have a year ago while keeping their monthly payment unchanged.
When considering a mortgage, you should talk to multiple lenders to find the best solution to fit your situation. Exploring mortgage options with multiple lenders could potentially save you thousands over the life of your loan depending on the term, type and interest rate. However, it’s important to remember that each time you apply for a loan, your credit is impacted.
A mortgage is a long–term commitment. In addition to a lender, consider talking to a HUD-certified housing counselor to discuss the best mortgage options to reach your long-term homeownership goals.
There is a lot to learn in the home buying process and we invite you to visit us at hfamiami.com/homebuyers for information on our mortgage and generous down payment and closing cost programs. Our participating lenders will also be able to guide you along the way.