How to Choose the Best Mortgage

Buying a home can be a very complicated process. Though you may think finding the right home is the hard part, the truth is that isn't always the case. In fact, finding the right loan can be more complicated than that.

Here are some tips to help you find the right mortgage loan for all of your needs.

Make Sure You Are Ready

Are you financially responsible?

Before you even start looking at homes, you need to make sure that you are financially responsible enough. When trying to figure that out, you should ask yourself the following questions:

• How much can you afford each month? The easiest way to decide this is if you are renting. How much are you paying each month? Is that easy for you, or it is a struggle? Can you afford that, or should you look for a cheaper mortgage?
• What about the other costs of owning a home? Owning a home is more than paying a mortgage. You are going to have to save money for maintenance and upkeep. What about when things need to be replaced? Do you have an emergency fund if your roof needs to be replaced?
• Do you have a down payment and money for closing costs? The truth is that you are going to need to have some money saved for your downpayment and closing costs fees. In fact, the more money that you have saved, the less your monthly bill will be.

How good is your credit history and score?

Your credit history and score can really affect your ability to buy a home. The higher your score is, the better your rate will be. In fact, even a percentage can really make a difference. It might be the difference between a home that you love and one that you feel like you have to settle with.

For this reason, it is important to think about your credit score. Here are some things that you can do to help it.

• Pay off your debt. By paying off your debts, you are proving that you can handle the financial responsibility of paying off loans.
• Pay everything on time. Even if you can't pay off your loans, it is important that you pay as much as you can on time. Paying late can really affect your credit score.
• Don't close any credit accounts. Though you may want to close down any accounts as soon as you pay them off, it isn't always a good idea. Your credit score takes into consideration how much credit and debt you have.

Terms You Need to Know

Term of the loan

This is the amount of time that you will have to pay off your mortgage. Though most are fifteen or thirty years, you may be able to find something that is longer or shorter, depending on what you need.

Interest rate

The interest rate is what you are paying the lender because they are lending you the money. It is going to be a percentage of the cost of the home. The higher the rate, the more money your home will cost you.

Interest rate type

There are two types of interest rates.

• Fixed rates are popular because you know exactly how much you are going to be paying for the remainder of the loan. Your mortgage payment is not going to change as the market fluctuates.
• Adjustable rates come with some risk. You may start off with a lower risk, but if the market goes higher, your monthly payment is going to increase. That being said, your rate could go lower. But, you won't have any idea how much your mortgage is each month.

Most mortgages are fixed-rate because homeowners need to be able to plan ahead. They want to know what their payments are going to be. There is always the chance that it could go too high and they wouldn't be able to afford their home.  

Loan type

There are multiple types of loans available. Even worse, they each come with their own loan terms, interest rates, and interest rate types.

These include:

• Conventional loan. These are loans done by banks and credit unions.
• FHA loans. FHA loans are insured by the Federal Housing Administration and are commonly used by first-time homebuyers. They are popular because you may not need a big down payment. They are also good for people who don't have the best credit.
• Special loans. There are also special loans that you may be eligible for. These may include loans for veterans and farmers.

Preapproval

Before you even start looking at homes, you need to go through the preapproval process. Though you may think that it is a loan, the truth is that it is not. It is just a note from a lender saying that they would be willing to offer you a certain amount of money toward a home. When you get this, you will have some idea of how much house you can afford.

Tips to Find the Right Loan for You and Your Family

Don't be afraid to shop around.

There are many different options when it comes to buying a home. You don't even have to use the first lender that you visit. Ask your bank what their options are. Check out the interest rates of some credit unions around you. Don't forget to look at mortgage companies.

Each loan is going to be different so it is important that you read everything. Know what your interest rate is, what the fees are, and how much it is going to cost every month. You also need to know how much money you need for settlement and when the loan is going to be finished.

Take a hard look at your finances.

When you are preapproved, that doesn't mean that you should try to buy a home at that price. You need to make sure that you can truly afford to spend that much every month (and enjoy life). You don't want to be stuck in a home that you can't afford.

What should you do if you think you are ready for the next step?

If you think that you are ready to buy a home, you should contact a local mortgage company or your bank to see if you can get preapproved for a loan. Only then should you start looking at homes that are for sale.