If you’re financing a new home purchase with a loan, you are probably wondering what the best mortgage program is suited for you. There is no single answer, as this will depend on your unique situation. To determine what’s right for you, you need to consider some factors such as your income, the amount of house you can afford, and your available money for down payment.
House You Can Afford
Mortgage lenders, Primary Residential Mortgage Guilford, note that getting pre-qualified one key of the steps in determining how many homes you can afford. This is when the lender will evaluate your income and finances to give you an estimate of how much they can lend you. Keep in mind, however, that just because you qualify for a certain amount doesn’t mean that you can comfortably afford it.
Most lenders also use the 28/36 rule, which means that your total housing expenses should not go beyond 28% of your income and your total debt (housing, car loans, and other debts) should be no more than 36%. There are, however, lenders and loan programs that allow higher debt ratio. You need to be wary about such loans, as they may come with higher interest rates.
The typical down payment is 20% of the home’s purchase price. If you cannot afford this, it is good to know that other loan programs allow little to no down payment. Just remember that taking a loan with little to no money down comes with paying private mortgage insurance (PMI). This protects the lender in case you default on the loan. You may choose to get a loan now and pay PMI or wait a little more to save 20% down payment.
Plan to Keep the Home
If the property you’re buying is your “starter home”, you can choose an adjustable rate mortgage or a hybrid one to suit the time you intend to keep the house. One example is a 5/1 hybrid ARM, which has a fixed interest rate for five years and will reset annually. If you, however, intend to buy your forever home, a 15- or a 30-year fixed-rate mortgage is worth considering.
The right type of mortgage will depend on some factors. It is best to do your research, use affordability calculators, and talk to a reliable lender to make a sound decision.