A new home is one of the largest investments of a lifetime. Yet many home buyers know next to nothing about financing a home and the different loan options available to them. A typical home buyer will choose a lender based on loan products offered by their current banking institution or a Realtor recommendation.
Why Choosing the Right Mortgage is Important?
Choosing the right mortgage is important for a whole host of reasons, not the least of which is your financial output each month and what it will cost over the lifetime of the loan. Let’s look at the different mortgage options available today and highlight the benefits and drawbacks of each.
Don’t Waste Time Applying for the Wrong Mortgage
Your first consideration is to determine how much and what kind of mortgage you can qualify for and what that says about how much home you can afford. Applying for the wrong mortgage is simply a waste of your valuable time.
The two primary types of mortgages today are conventional, and government backed.
Conventional loans are offered by banks and other lending institutions. These mortgages are then sold to other entities such as Fannie Mae (FNMA) or Freddie Mac (FHLMC) which are government-sponsored but not government owned. Because these loans must adhere to very strict guidelines to be sold, conventional lenders typically have more stringent underwriting guidelines and require borrowers to have a larger down payment and very good credit and cash reserves to quality.
Government-backed loans typically have less stringent criteria and can be suitable for veterans, new homebuyers and borrowers who may not be able to qualify for conventional loans. They fall into three categories:
- FHA Loans are those that are insured by the Federal Housing Administration. These mortgages were first established to provide a more affordable alternative to homebuyers, particularly first-time buyers.
- VA Loans are insured by the Veterans Administration and are available to current or former military servicemen and women.
- USDA Loans are backed by the US Department of Agriculture and are primarily for rural properties.
Mortgage Shopping Can Be Confusing
Mortgage loans have a broad spectrum of interest rates, terms and other variables. Closing costs can vary dramatically. A borrower may not be approved for a conventional mortgage but may be within guidelines for a government-backed mortgage. Because of this, it can be difficult for a borrower to understand if he or she is applying for the best possible mortgage for their needs.
Consult with a Specialist
Getting prequalified by a Louisville mortgage company can be one of your most important decisions. A prequalification will take into consideration your credit score, debts, income and other expenses to see how much mortgage you can afford. This information helps you understand what type of mortgage fits your financial profile and lifestyle best. It also lets you budget how much you can spend on a home.
At First Savings Bank of Louisville, we offer no-obligation prequalification’s so you can make an educated decision about your home and mortgage shopping. Let us help you find the right mortgage product for you and your family. Contact us today at (502) 238-9655.