All You Need to Know About Choosing the Right Mortgage

Written by: Amanda Price

Whenever you are looking to purchase a home, one of the most important things that you will need to consider is a mortgage. A mortgage is financing arrangement that you get in order to buy a house. Once you get a mortgage, you will need to make monthly payments for a specific period of time. In most cases, a mortgage is 30 years but some go for 15 years. Anytime that you are looking to get a mortgage, you will need to assess your financial situation as well as shop around for the option that is best suited for your needs. As a prospective borrower, you will need to know things such as the types of mortgages available, the interest rates, the terms and the qualifications in order to get one. With this knowledge, you will be able to more easily get the financing for a new home.

TYPES OF MORTGAGES

There are three types of mortgages that you can get when financing a home. The most common type of mortgage that you can get is a conventional mortgage. This is where you put down 20% of the home’s value and then receive 80% in funds to pay back over time. Compared to the other types of mortgages, a conventional loan has the highest standards in qualification criteria and credit rating. Getting this mortgage is usually the first option that people look to get when they are looking to finance a home.

Another type of mortgage is a FHA loan which is offered by the government. With an FHA loan, an individual is able to purchase a home and get a mortgage with a very low down payment. Along with a low down payment, a FHA loan also has more flexible credit score criteria as well. You won’t need to have as high a credit score compared to a conventional loan.

A VA or Veterans Administration loan is a mortgage given to people who have served in the military and their family members. This is one of the top mortgages to get because it often requires no down payment and low closing costs. While this loan is very beneficial, its main requirement is that you need to either be serving in the military or be a member of the military in the past. You would also need to be related to someone who served in the military as well.

QUALIFICATIONS

Whenever you are looking to get a mortgage, it is important that you understand the qualification criteria. These are standards that you will need to meet in order to get the loan. It is important to make sure that you meet all of these qualifications so that you will maximize your chances of getting approved. The most common qualifications for a mortgage include as sufficient income, a down payment and a good credit rating. By meeting these qualifications you will be in position to get the financing you need to purchase a home.

CREDIT RATING

One of the most important things that you will need to consider when getting a mortgage is your credit rating. This is a numerical score that provides an assessment of your creditworthiness. It’s a score that rates your ability to pay back debts and your track record of making timely payments on numerous financial obligations. Whenever you are looking to get a mortgage, you will need to make sure that you have a credit score that is adequate for the loan you wish to get. In most cases, you will need a credit rating or score of at least 620. However, you can qualify for a mortgage such as FHA loan with a score of at least 580. The higher the credit rating, the easier it will be to get a mortgage on the most affordable terms.

INCOME

Another important thing to consider when getting a mortgage is your income. You need to have sufficient means to pay back the loan on a regular basis. Therefore, lenders will evaluate your income to make sure that you have a consistent enough income to meet the loan obligations. In most cases, the monthly income will need to be four or five times the loan amount. For example, if the mortgage is $1500 per month, you will need to have a gross monthly income between $6,000 and $7,500 per month to qualify. The mortgage cannot exceed 36% of your total income.

INTEREST RATE

One of the things that make up a mortgage is the interest rate. This is a small percentage that you need to pay on top of the principal balance. An interest rate provides the lender with a profit margin. As a borrower, you will want to minimize the interest rate so that your mortgage is more affordable. One of the best ways to get a low interest rate is to have a good credit rating. By getting a low interest rate, you will have more affordable mortgage payments. Today mortgage interest rates are at historic lows as you can get a rate of about 3.75%.

TERMS

Another one of the most vital aspects of mortgages is the terms. This includes the amount of years of the mortgage and the monthly payment. As stated earlier, an average mortgage is about 30 years but you can also get one for 15 years if you plan on paying it off sooner. The other part of the mortgage terms is the monthly payment. This will vary depending on the interest rate, down payment and duration of the mortgage. It is important to get a monthly payment that is most affordable for you so that you can easily pay the mortgage on time.

CONCLUSION

Getting a mortgage can be a complicated process for first time homebuyers. However, by considering a number of factors and with certain knowledge, you will be able to easily find a mortgage option that will best meet your financial needs. Those who are looking to get a mortgage will want to consult with a mortgage broker or loan officer so that they can find out what they qualify for and take the necessary steps to get financing for a new home.


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