What is the best type of mortgage for me?
What Home Loan Option is Best for me?
As a future homeowner, choosing the best mortgage for you is like choosing the best career path: there are tons of options, but only a handful that you’ll qualify for, and even fewer that will really make you happy. The good news is that by asking yourself which mortgage is best for you, you’re already thinking like a savvy consumer -- you recognize that you have a choice between many different mortgage products, and it’s just a matter of narrowing them down.
To make this easier on you, we’ve identified a list of questions you can ask yourself in order to determine the ideal home loan for your situation. However, if you’re already leaning toward one type of mortgage, check out our loan product guides linked below to get an in-depth picture of each of the main options. Otherwise, work your way through the questionnaire to start brainstorming which mortgage will best fit your financial and personal needs.
Loan Product Guides
Questions to Ask Yourself When Deciding on a Mortgage Type
Here are the top four questions to ask yourself when deciding on the best mortgage for you:
What does my financial situation look like?
If you have a 20% down payment and good credit (a high score is 700 and above), you’ll have far more leverage when choosing a home loan than you would with bruised credit or a low down payment. More leverage means better terms -- and better terms will save you money both now and in the long-run.
This isn’t to say you can’t qualify for a home loan with a low down payment or poor credit, however. Government-backed programs like the FHA and USDA loan are both designed to help people become homeowners in spite of a less-than-perfect financial situation.
Regardless of the loan program you seek out, you will -- at the minimum -- need to be able to demonstrate that you have had a reliable source of income over the past six months. Most lenders will be willing to work with you to find the perfect loan product if you have an ongoing income source, regardless of your down payment and credit history.
Do I qualify for a VA, USDA, or FHA loan?
Government-backed loans, especially VA home loans, are fantastic options for first-time and seasoned homebuyers alike -- if you qualify. If you’re a current or former member of the U.S. military, you will almost always get better rates and terms with a VA home loan than any other type of home loan. If you live in a rural area, a USDA loan can get you closer to your dream of homeownership with a very low down payment and less-than-perfect credit. The same goes for the FHA program, which serves U.S. residents in both rural and urban areas.
Do I want a fixed rate or adjustable rate?
Can you handle the idea of paying a different amount on your mortgage each month, or do you prefer the predictability of a steady rate throughout the life of your loan? Both private (conventional) mortgages and government-backed loans offer fixed and adjustable rates.
What can I afford?
A home loan with a longer term (30 or 40 years, for example) will tend to have low monthly payments, but you will pay far more in interest over the life of the loan. These loans are ideal for homebuyers who plan to stay put, or who want a more expensive house without having to make massive monthly payments.
A shorter term (10 or 15 years), on the other hand, will cost more per month, but may be the more responsible choice financially since you won’t pay nearly as much in interest -- and you’ll pay off your home faster. Consider both what you can afford, and what you’re willing to pay for, when deciding on the best loan term for you.