Which Home Loan is Right For You

Posted by: Erin Everhart on May 1st, 2012

The steady uptick in temperature ushers in more than just pool-side cocktails and barbeques. It’s the start of real estate season, and people are hitting the MLS and local Realtors in search of For Sale signs to lead them to their perfect home.

But before you move from hunter to homeowner, the mortgage industry must be conquered, and you’ll have to get a home loan. The good news is that interest rates on mortgages are dropping, with CNN Money reporting 15-year mortgages with an average rate of 3.11%. The bad news is there are so many loan options available, you may have a hard time figuring out which one is right for your situation.

These short questions can help point you in the right direction instead of taking a stab in the dark. If you’d rather view visuals, New American Funding created an infographic quiz that can help you find the right home loan though a series of short questions.

How’s your credit score?

  • More than 640: Conventional Loans are your best bet because you can take advantage of the low interest rates and flexible payments
  • Less Than 640: FHA Loans provide easier qualifying guidelines if you’re credit score isn’t great or you can’t afford a large down payment.

How big is the home you’re buying/refinancing?

  • Less than 3 bedrooms: If your home is more than $417,000, double check your county’s maximum loan limits. For a lot of house, High Balance Loans or Jumbo Loans are your best option.
  • 3+ bedrooms: If your home is less than $417,000, you’ll fall into the amounts of FHA or Conventional Loan limits.

Would you consider yourself a risk taker?

  • Absolutely: Adjustable Rate Mortgages (ARMs) give you a lower interest rate for the first 3-10 years, but it will adjust based on the market so if you can stomach the fluctuations, go for it and then go skydiving.
  • No way: Nothing wrong with being conservative. Secure yourself with a Fixed Rate Mortgage so you know how much you’ll be paying each and every month.

How old are you?

  • Under 35: You’re either a first-time home buyer or a home buying prodigy. Assuming the former, the FHA Home Loan First-Time Homebuyer Program is a great choice for your first loan.
  • Over 35: You’re likely old enough to have built up your credit history and put some money way to afford an FHA or Conventional Loan. If you’re over 62, check out Reverse Mortgages.

How much is your household income?

  • Less than $150,000: FHA Home Loans provide the best value with the lowest price tag.
  • Greater than $150,000: If you make more and have a low income to debt ratio, you can quality for a higher loan amount. FHA and Conventional Loans are both options

How much longer do you see yourself working?

  • Less than 5 years: If you’re about to be retired, you may qualify for a Reverse Mortgage. If you’re a stay-at-home parent, find a loan that can be more affordable with just one income.
  • More than 5 years: FHA or Conventional Loans are best for the working class, but if you see yourself moving in 5 years, consider an Adjustable Rate Mortgage or a 15 Year Fixed Rate.
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Comments

7 Comments on “Which Home Loan is Right For You”

Thomas Brewer

I am a licensed Realtor as well as a mortgage broker. Nice post. Truly each person has a different situation. For many it revolves around liquidity and FICO scores.

Ruby Janssen

Interesting post – it’s not often you see mortgage options broken down like this. To many people seem to take a one size fits all approach. I would also suggest examining different options for an owner-occupier property and an investment property – for example interest only loans.

StagingWorks

I would say that a more proactive approach in dealing with financials, especially in home home is important. An honest evaluation on the credit score, what is afford and what is the household income will greatly help out in having the right decision and finding the right loan home that will match the needs. Thanks for the post. I really find it helpful.

AML

Financing is absolutely important in buying a property. These tips are really helpful in making the right decision because buying a home or property is one of the major decision one will be making in his or her entire life.
AML

Commercial Finance

Nice Post!To many people seem to take a one size fits all approach.An honest evaluation on the credit score, what is afford and what is the household income will greatly help.

first home loan

Hello, I was just looking through some blogs and I got to your homepage from bing. I read a few of your blog posts and thought they were good. Thanks, I’ll come back to your homepage again soon.

Small business loans

It’s a great article; the points provided here are really great which substantiates enough for buying a home. No one would have imagined of so many benefits, its just so helpful
Thanks

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