With all the loan products available, you want to find the right one that fits your life.
When applying for your pre-approval your mortgage professional can help you determine the most appropriate product based on the goals you've shared. Ask these questions:
Remember, mortgages are financial tools, not bragging rights. If you focus on the rate alone, you may not put yourself on the best financial track to meet your own objectives, so be honest with yourself when answering these questions.
Understanding the basic mechanics of fixed and adjustable rate mortgages (ARM) is key when trying to make a decision about which product will work best for you. Let's briefly review the difference between the two—then you'll be ready to make your decisions.
Fixed rate mortgages are the most stable of the options — the rate is fixed for the term of the loan. There are many options regarding the length of fixed-rate-mortage, such as 10, 15, 20, 25 or 30 years (the most common being 15 and 30 years). For example, a 10 year fixed rate loan is amortized over 10 years or 120 months. The loan will be paid in full by the end of the term of the loan.
If you are considering a shorter term simply because of a lower rate, remember, you can always make an additional payment throughout the year which can reduce your mortgage term by 5 to 7 years.
When used properly, good financial tools. Before deciding on an ARM product it's prudent you understand how ARM rates move.
Adjustable rate mortgages have interest rates and monthly payments that change based on the index the rate is tied to (LIBOR being the most common). Many ARMs will have a fixed rate during the initial fixed period, then begin to adjust once that period expires.
Once your fixed period expires, your rate will begin to adjust; in an effort to keep the rate from climbing too high, the lender offers rate adjustment caps.
If you've chosen an adjustable rate mortgage you'll need to speak with your mortgage professional about the most appropriate ARM for your financial goals.
If you are purchasing a starter home, the average amount of time you might expect to spend there is 5-7 years; however, if you're unsure, keep in mind that 5–7 years can fly by, and you might not be ready to move at that time. In that case, a fixed rate might be the best option since it offers flexibility of options. For example, if after seven years you would like to remain in the home you will not incur the cost of a refinance (out of your adjustable rate loan) or be subject to possibly higher rates.
You should consider whether you'll want to keep the home when you're ready to move or not. Fixed rates will allow you to keep the same payment until you are ready to sell, if ever. When considering your options you should always speak with your mortgage professional for all of the details related to available mortgage products.
There are many types of mortgage loan programs available, and it can become overwhelming when trying to decide which program will meet your financial needs. Before determining which loan program is right for you, you'll need to ask yourself:
Be realistic when answering these questions; these are your financial goals and your answers will help point you the direction of the type of program you'll need.
Answering this question will be easy if you are clear on the difference between a conforming and jumbo loan.
Learn more about the loan limits in your area. While this site offers Fannie Mae loan limits, both Fannie and Freddie rarely run independent of one another.
This is an important question and your answer will help narrow down your program eligibility. For example, if you will put down less than 5 percent then FHA will be your best option; however, if you have 5 percent or more, you can take advantage of the Fannie Mae and Freddie Mac loan options.
When determining how much savings you have for your down payment, don't forget to include closing cost calculations. You'll need to speak with your mortgage professional regarding an estimated itemized list of closing costs—this is also known as your Good Faith Estimate.
There are several loan programs you might qualify for and speaking with your mortgage professional about all of your options will yield the best results.
Let's briefly review some more popular loan programs available:
Speak with a mortgage professional and get started.