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How to Choose the Best Mortgage for Your Financial Situation

Shopping for a mortgage isn’t something we do every day. But it’s a big financial obligation so getting it right is important. Choosing a mortgage loan can impact your financial situation long-term, so you want to do thorough research and make the right decision.

Today, we’ll explore some of the common decisions people have to make when choosing a mortgage option.

What Can You Afford?

If you’re getting a mortgage for the purposes of buying a home, it’s wise to start with some basic budget analysis. By figuring out how much you can afford to pay each month, you’ll be able to narrow your home search.

Having a budget in mind can also help you when it comes to choosing a mortgage loan option. This is why it makes sense to get pre-approved for a loan before entering the real estate market.

Let’s move on to discuss some of the considerations you’ll need to make when choosing a home loan.

What Type of Mortgage Is Best for You?

There are many different mortgage products available these days. But for the most part, they can be distilled into some basic categories. These categories include:

  • Conventional mortgage loans that are not backed by the government
  • Federal Housing Administration (FHA) home loans that are government insured
  • VA loans for military members, veterans, and qualifying spouses

There’s also an important distinction between fixed and adjustable-rate mortgages, which we will cover through the rest of this article.

For borrowers with a solid work history, good credit and some cash reserves, conventional loans are the cream of the crop. This is especially true if you can afford to make a 20% down payment. By putting at least 20% down on a conventional loan, you could avoid the added cost of mortgage insurance.

If you’re a new home buyer, have a less-than-stellar credit score or not a lot of money for a down payment, you may want to consider a government-backed mortgage. FHA mortgages are specifically designed for home buyers with less cash on hand for a down payment and lower credit scores.

If you have a military connection, be sure to consider the VA loan program. This program was developed specifically for current or former military personnel. In either of these cases, the qualification standards are more lenient than with conventional loans. This program also allows you to buy a house with no money down.

What Length of Mortgage Do You Want?

Mortgage loans come in different term lengths. The standard 30-year mortgage is the most popular among borrowers, but it’s not always the best option.

If you can afford making a larger payment, it’s usually advisable to choose a mortgage with a shorter term length. This offers a substantial reduction in what you will pay over the course of the loan. That’s because fewer payments equal less interest paid over time.

Shorter mortgage terms also tend to carry a more favorable interest rate. The only time that a shorter term may not be to your advantage is if you’re looking to move in the next few years. In that case, you might be better off choosing a 30-year loan to minimize your payments in the short term.

Fixed or Adjustable-Rate?

Mortgage rates have risen in recent weeks, but they’re still pretty low by historical standards. There’s a chance that rates could climb even higher in 2022. In that case, you might want to consider locking in your rate for the long term to avoid a possible increase down the road.

While fixed-rate mortgages may begin at a higher interest rate than adjustable-rate (ARM) loans, they also offer the long-term peace of mind of a guaranteed rate.

Again, if you are looking at this home as a short-term investment, it might pay to take advantage of an adjustable-rate mortgage for the smaller short-term payments.

As you can see, there are many considerations to make when choosing a home loan. The smart strategy is to find one that works best for your situation.

Talk to a Mortgage Broker

Professional advice goes a long way when it comes to choosing a home loan. By discussing your financial profile and your intentions with a mortgage broker, you can fine-tune your strategy and find the most appropriate product.

Bridgepoint Funding is a Bay Area mortgage broker that serves all of California. If you have financing-related questions or need help choosing a home loan, please contact our knowledgeable staff.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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