In the US, average house prices are soaring, with the median price of an existing home clocking in at $284,600.
Although fun and exciting, purchasing a home also often involves financial challenges.
Shopping around for the best mortgage can help ensure that you choose a financing option that suits your needs and budget over the long term.
Determine your Budget
Purchasing a home is a large investment, so you need to start by working out how much you can afford.
Take into account your monthly mortgage payments, home insurance, and property taxes.
You can then work out your ideal down payment.
Although it likely seems like a big ask, aiming for a 20% down payment means you start out with a smaller mortgage loan balance, which cushions your purchase by preserving equity, even if the real estate market starts to decline.
Additionally, the higher your down payment, the lower your mortgage interest rates will be.
Choose the Best Loan for You
Mortgages aren’t one-size-fits-all products.
There are numerous loan types available to suit various different circumstances and budgets.
For example, people who have a lower credit score or limited savings may need an FHA loan, which is a mortgage insured by the Federal Housing Administration.
To qualify for this loan, you’ll need a credit score of at least 500 but will need to make a larger down payment.
Alternately, jumbo loans are used to finance properties too expensive for standard loan guidelines, which cap out at $548,250 in most counties.
Understand Interest Rates
Mortgage rates often fluctuate, and you need to understand the different interest rates in order to choose the best loan.
You’ll either choose between a fixed-rate mortgage or an adjustable-rate mortgage (ARM).
While ARMs typically offer lower introductory rates, these can increase once the introductory period finishes, therefore causing your mortgage payments to potentially increase sharply.
In some cases, ARMs are a good option if you intend to pay off or refinance your mortgage (or even move home) before this guaranteed rate expires.
However, if you end up staying in the house for over seven years, you may find the interest rates for a refinance into a fixed-rate loan are significantly higher.
Purchasing a home is a serious investment that requires careful financial planning.
By taking the time to research the best mortgage for your situation, you’ll be better able to successfully finance your investment.
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