Unless you’re independently wealthy (and sometimes even then), buying a home means getting a mortgage loan. Home loans are pretty much a universal requirement these days. There’s no getting around it. With that being said, there are multiple options out there, and you need to know how to choose the one that’s right for your particular needs.
Fixed Rate Mortgages
Fixed rate mortgages are the most common in existence, and they’re generally the best fit for most home buyers. These home loans have the benefit of ensuring that you know exactly what you’ll pay every single month for the life of the loan. It’s probably what you think of when you imagine a mortgage in the first place.
Of course, there are drawbacks. For instance, you’ll be stuck paying the same interest rate even if the actual rates drop far below what you were given when you applied for the loan. There’s also the fact that fixed rate loans often carry a higher premium in the form of percentage points, but the peace of mind offered by being able to budget is generally worth the extra.
If you plan to stay in your home for a long period of time and aren’t particularly happy with financial risk, a fixed rate mortgage is the better choice. However, they aren’t necessarily the most affordable. They’re just the most predictable.
Adjustable Rate Mortgages
Adjustable rate mortgages are pretty much the opposite of fixed rate mortgages. They’re just want they sound like. Rather than a single interest rate for the life of the loan, you get a fixed rate for only a specific introductory period, and then the rate changes based on market movements. This could give you the benefit of dramatically reducing the amount you pay in interest if rates drop.
However, it could result in a much higher payment each month if rates were to climb. For many buyers, that’s just too much left to chance. Without the ability to budget for your home payment after the introductory period, you could be in hot financial water. There are also different forms of adjustable rate mortgage that may or may not work for your needs. Some lenders now offer adjustable rate mortgages that adjust less frequently than others, which could save you some money, or at least a little bit of sanity.
There’s also the potential to enjoy a very low interest rate during the introductory period. If you’re planning to buy and then sell again within just a few years (say, before the introductory period ends, or shortly afterward), this could be a smart move.
In addition to the type of mortgage, you need to consider the amount you’ll be required to pay as a down payment. The minimum with most lenders is around 3 to 5%. However, understand that only paying the minimum can increase your costs by requiring you to have PMI, or private mortgage insurance. You can get around this by putting 20% of the loan amount down in the beginning, but many buyers simply cannot afford that. Either way, the more money you put down at the start, the less you’ll pay in interest during the loan.
Working with a Long Island Mortgage Broker
Really, the best way to move forward with your home buying plans is to get the help of someone who has in-depth knowledge of the mortgage industry – a Long Island mortgage broker. This offers a number of benefits.
For instance, it simplifies things a great deal. With a Long Island mortgage broker like Reliant Home Funding, you get the added benefit of our exclusive 1st Approve program. Essentially, this allows you to start the process of getting a loan, including being approved by an actual underwriter for a specified amount, even before you find the property you want to buy. Once you find the right property, it’s added to the approval and the process continues.
In the next step, your mortgage broker will help you understand the various home loan options out there and how they apply to you and your situation. You’ll learn about fixed rate and adjustable mortgages, but also unique programs like VA loans (for veterans and certain family members), FHA loans and more.
If you’re interested in learning more about the 1st Approve program, or speaking with a Long Island mortgage broker about your options when it comes to a home loan, get in touch with us at Reliant Home Funding. We’ll walk you through the process, answer your questions, and help ensure you’re able to make an informed decision.
Gregory A. Topal
Gregory is Co-Founder and Licensed Loan Originator at Reliant Home Funding, Inc., a Long Island based Mortgage Company. Gregory currently holds a Mortgage Loan Originator License in NY, NJ, CT, CO, FL and PA and plays an active role in running the company. (NMLS #: 38684)
Gregory was raised in Long Island, NY and attended SUNY Oneonta receiving a Business and Marketing degree in 2004. Shortly after graduating he started a career in Real Estate and has been fortunate enough to advance his career throughout the years. He believes his success can be attributed to consistently striving to exceed the expectations of his clients and colleagues.