How to Pick the Right Type of Mortgage for You With 10 Great Tips

8 March 2023

When selecting a mortgage, there are several factors to take into account. Your income and credit score, as well as how long you plan on staying in the home, all factor into how much interest rates and monthly payments may change. With any type of mortgage, however, make sure it meets all your financial requirements.

Tips to Help You Select the Ideal Mortgage:
Selecting the correct type of mortgage is critical when it comes to controlling your monthly payment and loan term. From conventional loans to government-backed ones, there are various home mortgage options available on the market. With these tips in mind, you’ll be well on your way to selecting the perfect loan option for you.

Conventional mortgages are the most popular type of mortgage in America, accounting for 70% of all loans issued. These are backed by private lenders such as banks and credit unions and can be an attractive option for homebuyers with good credit who have enough cash for a down payment.

Conventional loans come in two primary varieties: conforming and nonconforming. Conforming mortgages meet certain standards set by the Federal Housing Finance Agency (FHFA), such as credit, debt and loan size limits that adjust annually based on inflation. On average, these limits range from $647,200 in most areas of America up to $1,089,300 for more expensive areas of the country.

Nonconforming mortgages, which lack government backing, come with stricter eligibility criteria and lower borrowing limits. Moreover, these mortgages may be inaccessible to the average consumer due to higher mortgage insurance premiums and higher closing costs.

What Is a Balloon Mortgage?
A balloon mortgage is an option in which you make one large lump-sum payment at the end of your loan term. You have three main loan options: conventional, government-backed or jumbo.

When selecting a balloon mortgage, you’ll need to determine if you can afford the large lump-sum payment that must be made at the end of your loan term. If not, other mortgage options might be more suitable since no large upfront payment is necessary at that point.

Getting Preapproved for a Mortgage with No Money Down
Before you begin looking for a mortgage, it’s essential to get preapproved so you can determine how much house is within reach. As a first-time homebuyer, you’ll need to provide income, employment documents and other documents so lenders can verify your creditworthiness and assets.

What’s the Ideal Loan Term?
A fixed-rate mortgage secures your interest rate for the duration of the loan. Plus, you’ll know exactly how much your monthly payments will be – helpful when budgeting and making sure there’s enough money left over for other living expenses.

Depending on your individual situation, an adjustable-rate mortgage (ARM) might be suitable. Compared to fixed rate mortgages, ARMs usually offer lower initial rates but the rate can change during the course of your loan term.