7 Factors To Consider When Choosing A Mortgage

7 Factors To Consider When Choosing A Mortgage

More than 60 percent of American homeowners have a mortgage. Whether you’re buying for the first time or you’re looking to renew, you’re likely wondering how to get the best mortgage for your situation.

There are quite a few different factors you’ll need to consider. Many people know they need to look at the interest rate on the mortgage. What else do you need to think about when choosing a mortgage?

You’ll want to keep these seven factors in mind.

Understand the Types of Mortgages

Did you know that there are six main types of mortgages? Most people know about the conventional mortgage, but what about the other five?

Most mortgage loans are conforming. That means they meet Fannie Mae or Freddie Mac criteria. Other mortgages are non-conforming, such as jumbo mortgages.

Three other types are sponsored by the US federal government. These include loans from USDA, the Federal Housing Administration, and Veteran Affairs. The guide at https://www.farmersbankidaho.com/personal/home/mortgage-loans has more details on these loans.

You’ll also want to understand the different types of mortgages when it comes to how interest is structured. Balloon mortgages, fixed-rate mortgages, and more mean you have more choice when it comes to getting the right mortgage.

Think About the Term Length

The length of mortgage loans is one of the most important factors. Many lenders amortize the loan over 25 or 30 years. This can affect how much interest you pay, as well as your monthly payments.

You’ll “lock in” for a shorter term at a particular interest rate. Even with an adjustable rate mortgage, you’ll usually have a fixed rate for part of the term.

Typical terms can range from just a year to five years in length. Two- and three-year terms are common as well. Mortgages can sometimes be as short as six months, which may allow you to take advantage of falling interest rates.

Longer terms are usually fixed rate, and they’ll lock you in for the length of the mortgage. If you suspect interest rates are going to fall, you might choose a shorter term or go with the adjustable rate mortgage.

If you think interest rates will rise, then it’s a good idea to lock in for as long as you can. Fixed rate mortgages often have higher interest rates, though, so your payment may increase.

Consider Other Fees When Choosing a Mortgage

There are often other costs associated with mortgages. These include origination fees, administration fees, and more.

In some cases, these fees will add up. Always check with the lender and see just how much you’re tacking on to your mortgage with these fees.

Shop Around for Mortgage Lenders

When it comes to picking mortgage lenders, you want to be confident in your choice. That means you’ll want to spend some time shopping around for lenders in your area.

You can often ask for recommendations from friends and family. Who have they worked with in the past? Is there anyone they’d suggest you should steer clear of?

Remember to look beyond the big banks too. These institutions are often the first place mortgagees turn. They don’t approve everyone though.

Credit unions, private lenders, and mortgage brokers offer you more options as well. Make sure any lender you consider offers competitive rates and the products you need. If you want to get a loan with USDA and the lender doesn’t offer this option, you won’t be able to get it through them.

Finally, compare customer service between lenders. Can you go meet with your lender? How fast do they respond to your messages?

If you’re going to work with them for the next 30 years or even just the next 5, you want to be sure you’re getting great service.

Ask About Pre-Payment, Deposits, and More

You’ll want to consider mortgage payment terms as well. You may end up selling your house just a few years into the mortgage. Unless you have a portable mortgage, you’ll need to pay it off first.

What will happen if you pay the mortgage off early? Most lenders will charge a penalty for this. It’s good to know exactly what those penalties are.

You may also want to ask about the pre-payment policy. Some mortgage lenders will let you pay off so much of the mortgage principle per year without penalty. This is over and above your scheduled payments.

Down payments also play a role in how large your mortgage is. You can often get a mortgage with as little as five percent down, but some lenders will want you to put much more down.

A larger down payment can make your monthly payments smaller and more manageable. If you can, try to put more down, even if the lender doesn’t demand it.

Look for Assistance Programs

If you’re not sure you can qualify for a mortgage, then you may want to take a look at assistance programs. There are a few aimed at first-buyers. There may also be assistance for low-income buyers.

Some of these programs are run through the federal government. USDA loans, for example, are designed to help those in rural areas buy a home.

Always check with a lender about any programs they accept or work with. Also ask them about their own programs and policies. They may specialize in helping mortgagees get a second mortgage or helping first-time home buyers.

How Fast Can You Close?

Finally, you’ll want to think about how fast the lender can close the mortgage. Some will take a good deal of time to finalize the deal and get you the money. Others are much faster.

Since the housing market is so hot right now, you want a lender who can seal the deal with speed. Online mortgage options may be faster for this reason.

The Right Advice to Get the Right Mortgage

Choosing a mortgage is a big decision, so be sure to give it proper thought. Consider all these factors, along with interest rates and more. You’ll be in a better position to choose the right mortgage for you.

Looking for more great advice about mortgages? We have everything from tips on unlocking better interest rates to refinancing advice. Check in with us often for all the latest!