How to Choose a Mortgage

When you make the decision to become a homeowner, there is a series of additional decisions that you’ll need to make before you reach that final goal and cross the threshold of your new front door. One of the most important decisions in that series is which type of mortgage loan you’re going to pursue in order to buy the house.

 

There are several different types of a mortgage loan, and it’s useful to understand your options going in so that you can decide which one will be best for your financial future as a homeowner. Here’s a quick primer on what you need to know — but remember, talking it over with a mortgage broker before you make a final decision is always a wise choice.

 

Conventional lenders include banks, credit unions, or any other non-governmental entities loaning money for mortgages.

 

Government-sponsored entities (GSEs) are lenders that offer government-backed loans, which often have looser requirements than conventional loans. They include the Federal Housing Administration (FHA), Veterans Administration (VA), United States Department of Agriculture (USDA), and other government entities.

 

And don’t forget about your own local bank or credit union. If you already have a relationship with a bank or credit union, stop in and ask them to share any information they have available about mortgage loans.

 

For most buyers (who likely are also carrying a credit card, student loan, and automobile debt), a 30-year loan will make the most sense. But if you can make the payments comfortably on a 15-year loan, it’s worth considering as the money saved over time is significant.

 

If you’re only planning on being in your home for a couple of years before selling, then that could be a good reason to consider an ARM instead of an FRM, but if you think you’ll stay for a while, then it might be wiser to go with an FRM over an ARM.

 

One point is worth 1 percent of the total sales price of the home — to a point on a $300,000 home would cost the buyer $3,000.

 

Is all this nuance making your head spin? A mortgage broker knows all of these mortgage options inside and out, and can quickly tell you whether you qualify for one or should think about another that you’d never considered. And a mortgage broker can also help you figure out how much house you can afford in the first place.

 

Ask your friends who are homeowners if they would recommend their mortgage brokers to you. Real estate agents also tend to know quite a few mortgage brokers, so ask the one you trust to refer you to one they trust. A mortgage broker who knows your financial profile and understands your needs is a huge asset in the search for a home, and it’s a good idea to get one on your side as soon as possible.