Now that you know what a mortgage is (see previous article), and how home loans work, it’s time to figure out how to get the one that will work best for you. If you look up mortgages on the internet, you will be overwhelmed with offers from various banks and lending companies, all promising you the lowest mortgage rate. Most likely it will leave you wondering how in fact you should go about getting the lowest mortgage rate you can and whom you should do it with.
As far as where to apply for your mortgage, you might be best off by going to a local bank that you already have an existing relationship with. This way, you are working with people who know you and your financial history and will most likely have your best interests in mind when it comes to home loans. Whichever bank you end up choosing will run a credit check to make sure that you have a history of paying bills on time, and being financially responsible. If the bank discovers you have a history of falling behind your bills and have habits of mismanaging your money, they may decide to deny your mortgage request. If you pass the credit check, the bank will then move on to discuss the different types of home loans they offer, and which one might be best for you.
Most mortgages are paid off in either 15 or 30 years. You can get either a fixed or adjustable rate on these mortgages. Though neither guarantees the lowest mortgage rate, a fixed rate mortgage is the more desirable of the two since you make your payments at a steady interest rate, regardless of what’s going on in the economy. When it comes to choosing between the 15 and the 30-year mortgage, it depends whether you’d prefer to make higher payments per month and pay it off faster, or if you’d want the longer payment period and have smaller monthly payments. If you have the extra money available, and are able to pay the debt of your home loans off as quickly as possible, you might opt for the 15-year fixed rate. The higher payments would probably not be as big of a concern to you since you know there won’t be too many of them. On the other hand, if you do not have large amounts of money available to pay off the mortgage quickly, or have other purchases to make in the near future, it would probably be wiser to apply for the 30-year fixed-rate. Rest assured your monthly mortgage payments will be no more than 28% of your monthly income.
You will usually also have to make a down payment after you are approved for a particular mortgage. The down payment can range anywhere from 5% to 20% of the sale price. This can either make your mortgage easier to manage (the more money you can put down, the lower your monthly payments will be), or add another obstacle in your path of home ownership. In the latter case, you can either try to apply for a mortgage with a lower down payment, or obtain insurance to protect the bank in case you are unable to pay the required percentage. This insurance is called Private Mortgage insurance.
Private Mortgage insurance is issued to people who are unable to pay 20% the homes cost on their own, but the bank feels confident enough about their credit history to want to issue them the mortgage. It is becoming very common for new homebuyers to use private mortgage insurance, since housing costs have been steadily rising over recent years. This insurance can be obtained through your mortgage lender.