How to Find the Right Mortgage for a New Home

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When shopping for a home, you’d want to get into a real bargain where you can save a great deal. So, before you hop into the bank, get accepted for, pay for a mortgage, and move in, you need to know your options first. There are various types of mortgages and clever ideas for finding the best one for you.

Finding the type of mortgage that fits your situation can mean a chance of decreasing your down and interest payment throughout your loan. Ask yourself these—how much down payment you can offer, your credit score, and the loan you need. How quickly you want to pay your loan is your basis for the mortgage term. 

When should you get a conventional mortgage?

A conventional mortgage is not government-sponsored allowing borrowers to have less than 20%  for a down payment, although it comes at the price of private mortgage insurance (PMI). Under a conventional mortgage, you have two options—conforming and non-conforming.

Conforming loan is when the loan amount follows the maximum amount restrictions that the Federal Housing Finance Agency had set. But when the loan amount exceeds the maximum limit, it’s considered a non-conforming loan, the most common of which are jumbo loans.

The most appealing aspect of a conventional mortgage is its low down payment for as low as 3%, backed by Freddie Mac or Fannie Mae. Even though its interest rate is a little higher than other mortgage types, the borrowing cost overall may be much lower.

The loan amount can be used to purchase a primary, second, or investment home. Most importantly, you can always ask your lender or seller to decrease some costs. When your equity reaches 20%, you can ask your lender to have it canceled or removed. You can always ask your seller too to help you pay for the closing costs.

However, it can be tough to get accepted for a conventional mortgage. You’ll need to have documents that can prove your assets, employment, income, and down payment. Other aspects you’ll have to pass are the credit score based on FICO with a minimum score of 620 or above. PMI insurance, which is something you pay to insure your lender, is an inevitable requirement.

A conventional mortgage is right for you when you have a stable job and income, at least a 3% down payment, and a very good credit score.

When should you get a mortgage insured by the government?

Three types of mortgages are backed by three federal government agencies—the U.S. Department of Veterans Affairs (V.A. loans), the Federal Housing Administration (FHA loans), and the U.S. Department of Veterans Affairs (V.A. loans).

Borrowers who don’t qualify for conventional mortgages usually explore the government-insured mortgage options. Since the required credit scores aren’t that high, the down payment can be lower. Both the first-time and repeat buyers are accepted for the mortgage.

The downside for government-insured mortgages is that the overall cost for borrowing can be higher than other types of mortgages and that mortgage insurance costs may not be subject to cancellation in several cases. 

With FHA, the minimum FICO score should be from 500 to 580. Borrowers will have to pay for mortgage insurance when they put less than a 20% down payment. For those who want to buy a home in a rural area eligible for USDA, a USDA loan is their best choice, especially for eligible low-income earners. 

Finally, VA loans help the U.S. active military and veteran members and their families afford to buy their own homes. There is no down payment or mortgage insurance, just capped closing costs and a funding fee.

Either of these mortgages is good for you if you’re disqualified for a conventional mortgage, you don’t have excellent credit, and you don’t have pristine savings.

When should you get fixed-rate mortgages?

Those who plan to stay in one place for at least 7 to 10 years would benefit from a fixed-rate mortgage, which means the mortgage and interest payment every month would stay the same throughout the life of the loan. 

This way, you can easily budget how much goes to your mortgage payment every month. The two common types are 15 and 30 years. If you choose a longer-term, then you’ll be paying a bigger interest.

How to Choose the Right Mortgage for You

Make sure that you already know what you can afford, are saving for any upfront costs you’ll face (down payment, closing, moving-in costs, etc.), and especially how long you want to pay it all off.

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