Home ownership involves a commitment to several critical steps: maintaining and upgrading the home to ensure an optimal return on investment. However, an oft-missed step in this strategy starts before you ever buy a home. Making sure you’re ready to buy a home and securing the right mortgage loan to get you off on the right foot.
Before you shop for a mortgage, get a few ducks in a row. Namely, you should:
- Have a down payment saved. Ideally, at least 10 percent of the home’s cost.
- Discuss with your spouse, partner or friend the length of loan that will work best. Two common loan rates are a 15-year, 20-year and 30-year loan. Obviously, with a longer loan, you’ll pay more for the home; however, shorter loan lengths mean a higher monthly payment.
- Decided how much of your monthly income you can devote to a house payment, and stick within that range, even if you’re tempted by a house that’s out of your budget. A house payment that takes up more than 25 percent of your take-home pay each month can become a burden.
Shopping for financing
Before you meet with your bank or mortgage broker, it’s important to understand the types of loans for which you may qualify:
- Fixed rate – In this type of mortgage, you effectively lock in the mortgage rate, and it won’t change over the life of the loan. If you can get a low fixed rate, this is generally the ideal way to go. If you get locked into a high fixed rate, you’ll have to go through the process of refinancing your home if and when rates drop.
- Adjustable rate – As the name implies, this type of mortgage doesn’t have a fixed rate over the life of the loan. Instead, the rate is adjustable, and changes according to the current market rate. Because of the uncertain nature of this type of loan, an adjustable rate isn’t for everyone. If you plan on selling your new home in a few years, the initially low interest rate of this mortgage can work for you.
- FHA – The Federal Housing Administration backs these home loans, which lenders are favorable toward because the FHA insures them.
- VA – The Department of Veterans Affairs offers military veterans access to a home mortgage that doesn’t require a down payment. These loans, however, tend to require higher fees than other mortgages, and higher interest rates, too.
Get sound advice from experts and explore all your options before diving into a mortgage loan. Years from now, when your home is on solid ground and you’re making great headway with your mortgage, you’ll be glad you spent the time to proceed with caution and wisdom.