Finding the perfect loan for the perfect home
Most of us are so focused on and spend so much time looking for that perfect house that we often accept the first mortgage that is offered to us. Theres a general attitude that a mortgage is a mortgage; they are interchangeable. Thats like saying a house is a house, or a car is a car. Its important to remember that you could wind up spending as much time with that loan as you do with that home, and that both should be a comfortable fit.
So, in the same way that you sat down and figured out what you could afford, what you wanted, and what you absolutely had to have in a home, you need to do the same in a mortgage. Before you even start looking at houses, you should figure out how much you can afford to pay … and how much you are willing to pay. They are not always the same. You know what makes a house comfortable, and thats what you are looking for in a home. You will be living with the monthly payment on it for years, so you should find one that is a good match for you.
To find out how much of a loan you could potentially qualify for, just download our free calculators. Plug in all of the required information and see what you can afford. Then, look at your own lifestyle, future plans and expenses, and figure out how much you are comfortable paying not only now but in the future.
It is important to find a realtor who can help to find you a home that fits within your budget and comfort zone. Click here to find a real estate professional in your area.
Now lets look at the different types of mortgages and see which one is right for you. There are two general categories: fixed rate and adjustable rate. If you figure you are going to be in the home for the long haul (at least 7 to 10 years), and you dont want to worry about what the mortgage rate will be in the future, a fixed rate loan is probably your best bet. No matter how high interest rates might go in the future, you are locked into that rate for as long as you keep the loan. You always have the option to refinance if the rates drop, but you are protected if they go up. While most of us tend to think in terms of 30 year fixed rate loans, you can also get them for 10, 15, 20 or 40 years. The shorter the life of the loan, the higher your monthly payment will be, but the less interest you will pay. You also build up paid equity more quickly with a shorter term loan.
If you figure youre going to be moving in a few years, or if you are looking for the lowest interest rate and payment you can get, (and dont or cant afford to) worry too much about what the future may bring, an adjustable rate mortgage (ARM) might be your best deal. The most common ARMs come in one, three five and seven year varieties. Once the initial period is over one year, three, five, or whatever, your interest rate will adjust according to the index and margin stated in your loan. Depending upon your loan, it could continue to adjust every year thereafter. The shorter the initial term of the ARM, the lower your initial interest rate will be.
In todays rising-rate environment there is less of an advantage in opting for an ARM, but the rates are lower. If, for example, you could get a 30 year fixed rate loan for 6.375 percent, you could probably get a one year ARM for around 5.375 percent, a three year for 5.75 percent and a five year for 6 percent. If you are considering an ARM find out what its limits are. Make sure the lender and the loan documents spell out what financial indicator the rate is pegged to, how much the rate can change in any one year, and how much it can climb over the life of the loan.
There are also interest only ARMs. Their interest rates are comparable to regular ARMs. The advantage is that all you have to pay is the interest, which means your payments are lower. The biggest disadvantage is that all you have to pay is the interest, which means you do not build up any paid equity. The second problem is that if you stay in the home, eventually you will have to start paying off the principal, probably at a higher interest rate, which will mean a much, much larger monthly payment. Keep in mind that in today’s environment, interest only loans are more difficult to qualify for.
Once you have chosen between a fixed rate and an ARM, you have to decide whether to apply for a conventional or government backed loan. Lenders are usually a bit more lenient on credit scores with government backed loans because the loans are guaranteed. They will not lose money on the deal, even if you default and they have to foreclose. If you are a qualifying veteran, you could get a no down payment, VA backed loan, either an ARM or fixed-rate. To find out if you qualify for a VA loan, go to and click on: “Am I eligible for VA home loan benefits?”
To learn the loan limit for where you live or for where you want to live…..go online to https://entp.hud.gov/idapp/html/hicostlook.cfm. Once there, type in the area you are interested in and find out what the loan limit is for it. You can also call HUDs consumer hotline at (800) 767-4483.
We all have our own personal dream homes. While it is hard to imagine a loan as exciting or as dreamy as a home, with a little bit of forethought, you can find one that will at least fit you as well as your dream home does.