It is natural for potential homebuyers to ask what the best mortgage option is. There is no definite answer, as this always depends on the individual situations. Loans with a low-interest rate may seem like the ideal choice, but it not always the right option. Experts suggest asking yourself how much house you can afford, considering your income and money available for down payment.
Options for Your Budget
Those with no enough money for down payment consider Federal Housing Administration (FHA) loan. This allows borrowers to get a loan with just a 3.5% down payment, although many lenders now offer loans with low down payment. If you don’t have much savings, there are several options available. It is, of course, better to save for at least 20% down to avoid private mortgage insurance (PMI).
Little to No Down Payment
While you can take out a loan with little to no down payment, be wary of the PMI. This is required if the loan-to-value is greater than 80%. This is why some choose to save and postpone home buying before they have enough money for down payment. Primary Residential Mortgage, Inc. and other mortgage companies note that PMI goes away as you pay down your home loan and build equity in your house.
Your Plan to Stay in the Home
If you plan to stay in the house for a short period, there are many good options to consider. A hybrid adjustable-rate mortgage (ARM) can match the time you intend to stay in the home. Some homebuyers find relief in a 5/1 hybrid ARM, which has a fixed rate for five years and interest rates that reset annually. Fixed-rate mortgages, however, are a good idea if you plan to keep the home forever. It is never advisable to lock in a 30-year loan if you plan to move in a few years.
The best type of mortgage will depend on your income, budget, and the time you will want to keep the home. You use a “how much house can you afford” calculator to come up with a figure. It is also best to talk to a reliable lender who can explain all the available options and help you come up with a well-informed decision.