Applying for a mortgage can be a strenuous and often complicated process. Navigating the ins and outs of mortgages can be daunting, but you will better understand where to start selecting a mortgage if you pay attention to these guidelines.
To follow are three factors to consider before applying for a mortgage.
1. Selecting a Mortgage Type
The first step is understanding the differences between conforming and non-conforming loans.
Two government-backed real estate investment companies known as Fannie Mae and Freddie Mac support conventional loans. Alternatively, nonconforming loans have fewer restrictions compared to conforming loans and are usually associated with government support programs.
Conforming Loans
To be sold to Fannie Mae and Freddie Mac, the loan has to meet certain guidelines set by the Federal Housing Finance Agency (FHFA). Conforming Loans have well-established guidelines for applicants, and tend to offer lower interest rates than non-conforming types like jumbo loans.
Conventional Mortgage
This is the mortgage that most people are familiar with. This type of mortgage adheres to market conditions and a commercial bank can help you apply for the loan.
Lenders tend to give the best rates on “owner-occupied” homes. However, there is one situation where you can buy a home without actually living in it by buying a house for your elderly parents. This type of loan is often called a Family Opportunity Loan.
If you have decided on a traditional mortgage, the next step is deciding on a fixed or adjustable rate.
What Is a Fixed-Rate?
A fixed interest rate is a payment option that is consistent for the duration of the loan. This type of mortgage allows you to lock in low rates, budget for the future, and reduces stress during a volatile market.
What Is an Adjustable-Rate?
An adjustable-rate will change with the market rates and is subject to fluctuations.
You first agree to a beginning term of fixed interest. This term can be anywhere from 5 to 10 years in length. The interest rates for this period tend to be lower than the market.
This type of loan is advantageous if you are considering a shorter-term mortgage. Adjustable rates will also automatically lower your monthly payments if the market interest rates decrease. You’ll likely never have to refinance with an adjustable rate.
Non-conforming Loans
These types of loans can be a good option if you do not qualify for a conforming loan. Non-conforming loans tend to have less strict mortgage terms and conditions. These loans are most often backed by government programs.
- VA Loans: are insured by the Department of Veteran Affairs
- USDA Loans: are insured by the United States Department of Agriculture
- FHA Loans: are insured by the Federal Housing Administration, allowing people with a lower income to buy homes
- Jumbo Loans: used to help purchase high-value property due to its higher loan limits
2. Compare Lenders
Mortgage rates and lending terms can vary between different lenders. That is why it is a good idea to compare your options when considering such a large purchase.
This might take more time than you are willing to spare, but the Consumer Financial Protection Bureau reports that borrowers can save up to $300 a year.
Commercial banks aren’t your only option. Credit unions, private lenders, and mortgage brokers can also offer you different avenues to explore. Make sure that your lender offers not only competitive rates but customer satisfaction as well.
3. Get Approved
After you have gathered all your documents together and examined your options for lenders you are ready to apply. Purchasing a house is a huge investment and with the proper research, you will be able to save yourself stress and money.
Consider Your Options
Make sure to analyze the estimated down payment of the loan, monthly mortgage payment, and interest rates before committing to a mortgage agreement. By following these three easy steps you should feel better equipped to begin the process of getting a new mortgage.
If you need more help selecting a mortgage, visit our blog for more information.
