When you get a home mortgage, you are using your prospective home as the security to pay your mortgage. Much like a car loan, your lender can take your property back should you not make the payments on your loan on time. So, in short, you will be using that home that you have fallen in love with to guarantee that you will make the payments on your mortgage. This means that you will need to choose your loan wisely so that you don’t get into a situation that you find you cannot afford.
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Fixed Rate Mortgage
Your first task when you purchase a house is to consider what you will be using it for. If this is the place where you will want to be for a while and live your life, then chances are that you will want to choose a fixed rate mortgage. In order to do this, you will need to make sure that you can put some money down on your purchase and many lenders now require about 20% down on your home, so if you are choosing to get a $200,000 home, then you are looking at putting down about $40,000. There are some ways to get around this, however, such as getting an FHA loan, which will usually let your get by with a lower credit score and only about 3% down on your home, which would come to about $6,000. This type of mortgage will usually also offer competitive interest rates, so you aren’t stuck with payments that you cannot afford. For many homeowners, this is a great way to get a mortgage that they can afford to keep making payments on while working to build the equity in their homes so that they can profit should they choose to sell and move on to something larger.
Adjustable Rate Mortgage
Other homeowners choose to get an adjustable rate mortgage to fit their needs. Many times, this type of loan is used in cases where the homeowner is not going to be keeping the home for long, or they will be turning around and selling it shortly. If you are certain that you will be able to re-sell your house in a short time for a profit, then choosing an adjustable rate mortgage where you only make the interest payments might be the right option for you. You should know that there are some factors which can greatly affect your chances of getting a home mortgage of any kind, so you should really pay attention here. While you know that you will need to have a good sum of money to put down, you should also know that you will need to have really, really good credit, which means that if you have a bumpy credit score right now, you will need to be working on it for at least a year to get it up to par.
You will also need to know what your budget is and make sure that your financial eyes aren’t bigger than your financial budget. Often, we find that in the interest of that big, gorgeous house, we will do what ever it takes. However, this is an approach that is being frowned upon more and more frequently. Instead, look at what you can afford and if your income won’t support the payments, consider saving more money to bring what you owe down to a manageable level.
Always remember that your home is the security on which your home mortgage is ultimately based, so if you want to make the home buying and mortgaging process easier,it’s best to choose a newer home and make sure to have it well inspected. If the home has problems, then be ready to walk away if you will be forcing your interest rate to go up or your lender to change their mind about your mortgage, as sometimes homes with age or problems can cause lenders to raise an eyebrow or two.