Know Your Mortgage Options When You Are Trying To Buy A Home

Posted on: 18 January 2020

Mortgage rates are low, and this means that many people are discovering that it is often more affordable to buy a home than it is to rent an apartment. When you talk with your bank about your mortgage choices, it's beneficial to know what types of mortgages are out there. You might be able to secure an FHA mortgage insured by the Federal Housing Authority, or have enough of a down payment to avoid paying PMI, or private mortgage insurance to protect your investment. You can choose from 15- and 30-year mortgage terms and look for a fixed rate or adjustable rate mortgage based on your needs.

FHA Mortgage Loans for Your New Property

An FHA loan is designed to help those with a lower credit score secure a mortgage to buy a new home. With a credit score of 580 or higher, you can generally pay 3.5% of a down payment on a home that you want to purchase. Your debt-to-income ratio has to be below 43%, and you can choose between a 15- and 30-year mortgage. Some lenders will allow borrowers with a 10% down payment to have a credit score below 580, even as low as 500 in some cases.

Traditional Mortgage Loans

With traditional mortgage loans sitting at about 3% interest, it's a great time to buy a new home. The higher your credit score is, the lower your mortgage rate is going to be. If you don't want to put down a 20% down payment on your home, you have to purchase private mortgage insurance to protect your lender in the event you default on the loan. Once you have 20% equity in your home, the PMI can be dropped. Talk to your bank about your interest rates when you have a good credit score and little or no debt to deal with.

Adjustable Rate Mortgages

Adjustable rate mortgages offer borrowers the chance to have a lower mortgage rate than a traditional mortgage, at least until the rate changes. You pay a set rate in the beginning of the loan, and the rate adjusts periodically according to market rates. This is a type of mortgage that is more beneficial for borrowers when standard mortgage rates are high, which is not the current state of the mortgage market.

If you are trying to buy your first home, talk with your bank's lending department. You can learn about the various mortgages available to you and find a great home to buy.