Buying your first home is a significant milestone, and your first mortgage a brainstorming decision. It is equally important to make a careful study of the payment options and the terms of repayment and the potential hidden costs to be incurred during home buying, before applying for mortgage financing with a specific lender.
Do your Homework in advance
This is probably the most important thing you need to do before you go mortgage hunting. Check out the various mortgage finance options available with different lenders and make a strategic choice of the best one that suits your needs and preferences.
ü Fixed-rate mortgages: Here, you can borrow money at an interest rate that is consistent for the complete loan term. Again, with ARMs you can choose your payment options each month - fully amortized payment or low interest-only option.
ü Adjustable-rate mortgages (ARMs): The interest rates for this type of loan is flexible and fluctuate according to the market.
ü Hybrid mortgages: In this type of mortgage, you have the choice to opt for fixed rates for a certain period and then switch over to adjustable rates. For instance, you may pay a fixed amount initially for five years and then subsequently amend your rate annually.
However, before you run into conclusion as to which mortgage option will be best suited for you, here are a few pointers to be taken into consideration
Bigger Down payment, low interest: Once you decide to apply for mortgage finance, it is time for you to consider your preferences and capability as well regarding down payment. Experts opine that the better and bigger your down payment, easier it become for you to handle the subsequent monthly payments. Moreover, a bigger down payment also calls for low interest rates for the loan term.
100% finance, high interest: If you do not want to part with a larger chunk of your savings as down payment, you still need not despair; because, some lenders offer up to 100 percent mortgages, i.e. no down payment for you at all. Even though, you will have to shell out higher interest rates. However, if you manage to pay up 20 percent of the loan amount initially, you can even evade paying the private mortgage insurance (PMI).
Get pre-approved: It is highly recommended to get your mortgage pre-approved, so that you exactly know the budget for your new home and how much you can afford to spend.