Whether you are considering purchasing a home for the first time or are seeking a mortgage to cover the difference between your current home’s equity and the purchase price of your new property, it is important to carefully choose the right mortgage lender.
What is right for one person may not be right for the next, which is why you should be sure to understand the basic details of mortgages and how they work so that you can make an informed decision about which mortgage lender to trust with your home loan.
Understanding Mortgage Types
One of the first major areas to consider when evaluating potential mortgage lenders is how (and if) they handle the type of mortgage you are seeking. A mortgage is not a single type of loan; in fact, a wide variety of mortgage types are available.
Perhaps the most common—as evidenced by its name—is the conventional mortgage, which is a private loan that requires a minimum down payment as well as proof of the borrower’s financial responsibility, such as income statements and good credit.
These loans generally come with primary mortgage insurance (PMI) if the borrower puts less than 20% down, but some lenders may have options to avoid PMI. If your loan terms include PMI, you will be paying an additional fee per month until you have reached 80% (or 78%) of your initial balance.
Mortgage lenders add this fee in order to cover the risk they are taking in lending to someone who does not have the buying power to cover a larger down payment.
FHA loans (from the Federal Housing Administration) are specifically geared toward lower income buyers who are in the process of purchasing their first home. These loans allow for low down payments; typically, 3.5% is a common number for the down payment to secure an FHA loan.
If you have not been able to secure a conventional loan because of your credit score, FHA loans will consider applicants with scores in the 500 range. However, these loans have one downside: you will pay PMI for the entire life of the loan.
VA (Veterans Affairs) loans and USDA (US Department of Agriculture) loans are specific mortgage niches geared toward individuals in these smaller categories: veterans and spouses, as well as low-income rural individuals. These are just a few of the many types of mortgages. A skilled mortgage professional can help you to understand which option is the right fit for you.
Terms For Your Mortgage
One of the most important factors to consider when choosing potential mortgage lenders is the terms they offer on your loan. Is the rate fixed or variable—or, in other words, will your interest rate stay the same for the life of the loan, or will it be reevaluated yearly based on the market?
Variable rates can be tempting because they may stretch lower than the lowest fixed rate, but you open yourself up to higher than average rates if the market shifts. What is the payoff term?
Many mortgages last for 30 years, but some people secure 20 or even 15 year loans, which result in a higher monthly payment but less interest accrued over the loan’s life. If a mortgage lender cannot offer you terms favorable to you, consider your other options.
Potential Assistance Programs And Benefits
Many lenders offer benefits to those who will take advantage of them, and these benefits can help to determine which lender is right for you. Reliable mortgage lenders can assist first-time home buyers and may even offer programs geared toward these and other groups of individuals seeking a mortgage.
Some lenders may offer the ability to pay the loan off early without penalty or pay biweekly instead of monthly, which can reduce the accrual of interest. Some lenders offer generous forbearance and deferral options for times of financial hardship, which may be important to you. Be sure to carefully evaluate what perks and offers a mortgage lender can provide when considering which company or bank to trust.
Work With Mortgage Professionals To Find The Right Fit
If you are considering a mortgage and are not sure what the right fit for you is, do not forget to reach out to mortgage investment professionals. At Fairfax Mortgage Investments, we pride ourselves on helping our Virginia, Maryland and Washington, D.C. customers navigate the process of buying a home and all the financial nuances that come with it. Whether your financial situation is complex or you simply do not know how to proceed, we can help. Reach out to schedule an appointment with an expert today.