Financing a mortgage is a major decision, as it will most likely involve your largest monthly expenditure. There is a lot of money at stake and the wrong decision can lead to paying much more than you have to, even to the possibility of foreclosure. The following article will give you some basic information to begin with, but you will want to dig further into the different types of loans, how interest rates are calculated and any government programs that may be available to you.
Financing a Mortgage: Be Prepared
Pardon the pun, but you need to get your house in order before choosing a financing option. You need to have a quality credit score so you can qualify for good interest rates. You need to have your financial information at hand to prevent delays or be refused financing. You should have also done the requisite research into how much property taxes and homeowners insurance will cost, so you are sure you can actually afford to own the home.
Financing a Mortgage: Interest Rates
The terms of the mortgage loan you are seeking are critically important to proper financing. Interest rates determine how much the financing will cost. Do a little shopping to compare rates. Another important consideration is adjustable rates versus fixed rates. Adjustable rates will change with changing market interest rates according to the terms of the loan, while a fixed rate remains the same throughout the life of the loan. If you are looking for a little risk while rates are high, adjustable rates could fit the bill. If you are looking for stability while rates are low, a fixed rate will be your best bet.
Financing a Mortgage: Length of Financing Period
The term of the loan, of course, is important as it will affect your monthly payments, how quickly you pay off the loan and the overall cost of mortgage financing. Most home mortgage loans are either 15 year or 30 year, though in some rare cases you may be able to find a 20 or 25 year loan. As a general rule, the shorter the loan period, the lower the interest rate, which means financing costs much less and you gain equity in your home much quicker. The reason many consumers go with the 30 year mortgage is because it offers lower monthly payments.
Financing a Mortgage: Know Your Limitations
A thorough examination of your finances is necessary to understand just how much you can afford before you make a substantial commitment to a loan. Don’t go after a 15 year mortgage if you can’t make the monthly payments. Don’t go with an adjustable rate mortgage if you can’t deal with the possibility of an increase in your monthly payments. Not being able to make payments after an interest rate increase is a major cause of home foreclosure, so be sure of yourself when financing a mortgage.
Financing a Mortgage: Shop Around
Shopping around is important when looking to finance a home. Lenders will vary on how they view you and the rates they offer you. The numbers for interest rates may seem small, but the difference between a 6.5 percent rate and a 6.25 percent rate can be huge over the life of the mortgage, especially if you go with a 30-year mortgage. Get rates from at least 5 banks before you make your final decision. Also, don’t limit your shopping to just the financing, shop around for homeowners insurance as well. Get at least 5 homeowners insurance quotes and you may find that it saves you a few hundred dollars per year as well.