The biggest purchase you are likely to make in your life is your home. In fact, your home purchase is so large that you will probably need to borrow in order to make it happen.
Because the right mortgage can mean a savings of tens of thousands of dollars over the life of your home loan, it’s vital that you do your homework ahead of time. You need to understand your mortgage terms, and choose the loan that fits your financial situation.
Where Do You Stand?
The first thing to do is figure out where you stand. Choosing the right mortgage for you starts with knowing your financial situation. Take an honest look at your finances.
Here are some of the questions to ask yourself:
- How much can you afford?
Look at your income and your expenses. How much can you really afford to pay each month? This will impact how much you can borrow, as well as the mortgage term that you choose. Don’t forget to consider costs beyond the principal and interest on your mortgage. You also need to consider utilities, maintenance, repairs, and taxes.
- What is your credit situation?
Your credit score plays a huge part in your final cost. If you have good credit, you are more likely to qualify for a low interest rate, saving you tens of thousands of dollars over the course of your loan. If you have a lot of debt already, you might not be prepared for a mortgage. You also need to do what you can to boost your credit score if you want to choose the best mortgage for you.
- How reliable is your income?
Do you have a good, secure job? If so, you might be able to handle a shorter mortgage term, saving you money on your loan, and helping you own your home that much sooner. However, if you are concerned about your financial future, a longer-term mortgage can provide you with better cash flow now, and can help you handle setbacks later.
Get a good idea of where you are right now, and base your mortgage decision on your individual situation. That’s only way to get the right mortgage for you.
Shopping Around for the Right Mortgage
Next, it’s time to do your homework and find out what you are eligible for — and compare mortgage terms from a variety of sources.
There are plenty of resources that can help you find out what the average mortgage rate is across the nation. There might be some variation by locality, and your credit and income situation will also contribute to the mortgage rate you end up with.
However, you should do your homework ahead of time so that you know what to expect.
Once you have an idea of your credit situation, and an idea of possible mortgage rates, you can use online mortgage calculators to play around with mortgage term length and other factors. You can look at the possibilities of fixed rate mortgage vs. adjustable-rate mortgage, and test out what happens if the mortgage rate on an ARM rises and you have a larger payment. These calculators make it possible for you to get an idea of what to expect in different situations so you know what you’re getting into.
After you’ve run a few scenarios, and you know what the right mortgage is likely to look like for you, get a few quotes from lenders. They can pre-qualify you with accurate information you provide. Tell them your ballpark credit score, your income, and your debt level. You should be able to get a few options to choose from.
You can also use online mortgage loan sites to help you find several loan choices. These sites take your information once, and then offer you a number of possibilities from a variety of lenders. This allows you to look over all of the information and choose the right mortgage.
However, you do need to be careful. Look at the fine print, and make sure you understand all of the terms so that there aren’t any surprises later.