Mortgages aren't one size fits all. So, how do you know which one is right for you? Start by asking yourself these questions.
Do you qualify for any special mortgage loan programs?
Owning a home has been the American dream for generations and there are a lot of incentive programs out there to help make it happen for first-time buyers. There are special loan programs for teachers, police officers, and firefighters. There are programs for people who want to buy a home in the country or help rebuild a forgotten city. There's the VA loan program for veterans and there's a long list of programs specifically designed for first-time home buyers. Whatever your situation is, do some research and find out if there are any benefits or special programs that you can benefit from before you start your mortgage process.
How's your financial health?
When you have great credit and a full 20 percent downpayment, you have a lot more options when it comes to what type of mortgage you could get. But if you're lacking in some of those areas, that will affect the interest rates your lender will offer you for each type of loan. You might consider lowering your interest rate by getting a 5/1 ARM with the goal of refinancing before the adjustment period kicks in. If you have a great interest rate, a 15 year mortgage might be more attractive to you than a 30 year one because you know you'll be able to pay it off in half the time. The bottom line is that your current financial situation will determine the options available to you. Consider the options that can continue to benefit you longterm, whether you're in great or only so-so financial shape.
If you're planning to a buy a house with your future spouse, here's a handy list that will help you evaluate your household finances.
What's your long-term plan?
You've likely spent a lot of time focused solely on how you'll save enough money for your down payment. Now that the time is finally here to buy a home, it's easy to get swept away in the excitement of the home search, visions of how you'll decorate it, what holidays you'll host there, and all the other wonderful things that come along with homeownership. But it's important to have a plan for how your home that fits into you life goals and your financial plan before you choose what type of mortgage you want to get.
- How long you plan to stay in your house
- How open you are to refinancing
- How experts predict housing rates may change
The answers to these questions will have a big impact on whether or not you should get a fixed-rate or adjustable rate mortgage, if you want a 15 or 30-year term, and if you want to take advantage of any government programs. We go into more detail about all the different mortgage types over here.
If you want more help deciding what mortgage type to go with, you can run the numbers with our 15 year vs. 30 year mortgage calculator. You can then estimate how much you can spend on a house based on your preferred mortgage type and current financial situation.