How to choose the best mortgage
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Alt-tag: Woman looking at laptop and trying to choose the best mortgage for her.
Buying a home is one of the biggest and most important decisions you will ever make. Regardless of how you are funding it, purchasing a home is a substantial financial commitment. You will want to be sure about the decisions you make, especially the ones concerning money. If you are new to the whole process, you might be wondering how to choose the best mortgage. We will break down the available options so that it is easy for you to make the best decision.
Mortgages as a way to the house of your dreams
People who can buy a home without getting a mortgage are few and far between. If you have dreams of homeownership, the house of your dreams will probably come with a hefty mortgage. Finding the property you want is not the end of the house-hunting quest; it’s just the beginning. Getting a mortgage to buy a home is pretty standard. It will also probably represent the most considerable debt you will have in your life. This debt will be so large that it will likely take you decades to pay off. While we always recommend taking your time, some people don’t have that option and buy a house in a hurry. Before you start panicking or do anything rash, let’s see how to choose the best mortgage suited to your needs.
Caption: There is much to do before you can move into your dream home.
Alt-tag: Sunrise in the suburbs lighting house with tiled roof.
Things to do in advance
Purchasing a house can be a breeze if you have all of your affairs in order.
- Get pre-approved for a loan – it’s essential to act fast once you find a property you like. It will also tell the sellers how serious of a buyer you are.
- Know what you are looking for – It is good to know what is on the market and what to expect. Do as much research as you can and avoid rookie mistakes. Also, figure out what you want from a house.
- Find professionals before you need them – we already mentioned the importance of acting quickly. The best way to do so is to have a team of professionals lined up in advance. Websites like com can help connect you with many moving companies. Your real estate agent can provide home inspector recommendations since they are sure to have plenty of connections.
Caption: Figuring out your budget and credit will let you know what options are available and help you choose the best mortgage.
Alt-tag: Money in a black envelope.
Know how much you can afford
You will have to pay back the mortgage you take out from the lender in monthly increments. It is essential to know exactly how much you can afford to pay monthly to know what properties you can look at. Most lenders have calculators that will not allow you to go over a certain threshold. This will make sure you can make the payments every month. Also, calculating what kinds of rates to expect will let you know how to choose the best mortgage. A good estimate is to max out the mortgage rate at about one-third of your income. In case you have other loans and debts, once combined with your mortgage, they shouldn’t exceed 40% of your income.
Conventional and Government mortgages
- Conventional mortgages
You can get this type of mortgage from any lender. They don’t need to be federally insured, meaning that most mortgage companies and private lenders fall into this group. Borrowers will need to have good credit and be able to pay a down payment. Some lenders will also require a good debt to income ratio.
Conventional mortgages come in two types:
- Conforming – these loans have a maximum limit set by the federal government. The Federal Housing Finance Agency (FHFA) sets the limits for each year; for Ohio, it is $548,250 per one unit. These limits can vary significantly by area since home prices in different states tend to be different as well.
- Nonconforming – going above the federal limits will make your loan nonconforming. These loans can’t be sold or bought by Fannie Mae and Freddie Mac, two government-sponsored enterprises. Due to the higher risk that accompanies these loans, borrowers will need higher cash reserves and larger down payments.
Caption: Government-insured mortgages are a good option for those with low or moderate incomes.
Alt-tag: Person handing over paper and pen to other person.
- Government-issued mortgages
These types of loans are granted by the U.S. government and are federally insured. Some of them can still be issued by private lenders, but they are insured and guaranteed by federal bodies. There are certain types of government loans that are only available to some groups of people, like military veterans. Other government loans are for people with low or moderate incomes, but those usually come with borrowing limits.
Types of government-issued mortgages:
- Federal Housing Administration (FHA) loans – this type of loan is suitable for low-income buyers and those who are buying their first home. You will only need a 3.5% down payment. The downside is that you will be required to pay a mortgage insurance premium, both upfront and annually.
- Veterans loans – these loans are intended for qualifying service members, veterans, and spouses. While private lenders grant the loans, the Department of Veterans Affairs ensures favorable terms.
- S. Department of Agriculture (USDA) loans – intended for low-income buyers from rural areas. Some USDA eligibility rules must be met to get benefits such as low or nonexistent down payment requirements.
Additional costs when buying a home
- Home inspection – even before you have purchased the property, you can perform a home inspection. Knowing about specific problems the property might have will help you plan future expenses.
- Renovations and repairs – depending on what the home inspection reveals, you might be in store for some work on your home. It is advisable to do these repairs before moving in to avoid living there while the work is underway.
- Moving to your new home – once the time to move into your new Ohio home comes, you will need to choose the right movers. So, if you want to ensure the best services Ohio has to offer, you should check a few companies, compare their quotes, do some background checks, read some online reviews, etc. Regardless if you are moving locally or long distances, you’ll want to hire professionals to handle your heavy lifting.
As you can see, there are many different types of loans that you could qualify for. When deciding on how to choose the best mortgage, it is crucial to check your credit score. It will let you know what your options are and what loans you are eligible for. Knowing how much you can afford and learning about other costs associated with homeownership will allow you to plan accordingly. So, get pre-approved and start house hunting!
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