Choosing the right mortgage loan is ideal when you are actively searching for a home to buy. There are so many things to take into account before finalizing your home loan. The number one thing to do is carefully review your finances. You should do that initially simply because that is what the bank, mortgage company or lender will do right away.
The lender will see what your gross earnings are versus your monthly expenses. In addition, your credit history, credit score, and job history will be examined too. Documents needed by the lender will be your pay stubs, W2 tax forms, and federal tax returns. However you shouldn’t do all of this legwork unless you know there is something attractive awaiting you like a good interest rate.
In today’s market, fixed rate home loans are extremely enticing since they are at multi-decade lows. Your payment will be fixed for 15, 20 or 30 years.
On the opposite end of the spectrum are adjustable rate mortgages. These feature a interest rate that can change with market conditions every month, 3 months, 6 months, annually, every 3 years, or every 5 years. The rate can increase or decrease but is controlled by restrictions on how much it can go up or down in any given period. So, it is a gamble in that your monthly payment can go up or decrease.
Conforming Loan: A conforming mortgage is a loan that is under $417,000.
Jumbo Loan: A loan amount that is over $417,000 or above.
FHA Mortgage Loan: These mortgage loans are insured by the federal government using mortgage insurance that is inserted into the loan payments. This is a popular type of loan for first-time home buyers. Moreover, the required down payment is very low when compared to other types of loan and credit scores are more lenient for applicants.
A loan that was very popular was the stated income loan but this got many irresponsible people into trouble and lenders had to abandon the low down payment no income verification mortgage. Nowadays, it is around 35% down or equity necessary to refinance depending on the region of the country you are in. In some parts, it is 50% necessary.
As you are shopping for a loan, the interest rate will be different from one company to another. This why you should compare fees and rates together so you can see what your total costs is when comparing loans. The lender is required to show the APR before the loan transaction is finalized.