Whether you are a first time homebuyer or a repeat, once you’ve decided you are ready to buy, you will need to choose the right home loan. This is a huge step when buying a new home, and we want to help you feel more confident and smarter about your decision to buy.
Before you shop around for a loan and talk to a lender, you should know the answer to a few key questions. Knowing the answers to these questions will help you be more decisive about which loan is the best fit for you.
- How much money do I have available for a down payment?
- Is it more important to have a lower monthly payment or cash on hand after I close?
- How long will I be staying in the home?
- Do I want to pay off my loan quickly and own the home sooner?
- What can my maximum monthly payment be?
Once you start talking to lenders, your head may swirl with acronyms, numbers and more information than you ever wanted to know about the mortgage industry. Before you start talking to lenders, start learning these terms:
- Interest Rate – This is used to calculate the amount charged to you for borrowing the money from the bank or lender. It is typically expressed as an annual percentage rate or APR.
- APR - The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
- Fixed Rate Loan – This loan has a fixed interest rate for the entire term of the loan. The benefit of a fixed-rate mortgage is that the homeowner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements.
- ARM – Adjustable Rate Mortgage. These loans generally offer lower initial interest rates, but allow for the rates to adjust at predetermined points in the future, generally every year. Some hybrid ARMS offer initial fixed rate periods of 5, 7 or even 10 years.
- Conventional Loan – A type of mortgage in which the underlying terms and conditions meet the funding criteria of Fannie Mae and Freddie Mac. About 35-50% of mortgages, depending on market conditions and consumer trends are conventional mortgages. In other words, Fannie Mae and Freddie Mac guarantee or purchase 35-50% of all mortgages. Conventional mortgages may be fixed-rate or adjustable-rate mortgages.
- FHA Loan – A loan issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loans allow the borrower to borrow up to 96.5% of the value of the home. The 3.5% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers.
- PMI – Private mortgage insurance is required by lenders if you don’t put down 20% of the sale price of the home. This protects your lender in case you default on the payments. PMI fees will vary depending on the loan amount and are tax deductible through 2013.
Once you’ve prepared your answers and gotten those baking terms under your belt, it will be time to talk with a few lenders.
Each bank provides a selection of loan programs that vary both from bank to bank and geographic area. You should speak with a few lenders to get an idea of which bank has the loan program best suited to your needs.
Don’t forget to ask about special loan programs. For example, you may qualify for a competitive interest rate without requiring a down payment or having to pay PMI. If you’re an active serviceman, veteran or surviving spouse, you may be eligible for a VA loan. There are a variety of loan programs out there that may be a good fit for you, but you will never know unless you ask.
Finding the right loan and lender for your situation could save you a lot of money and a lot of hassle.
To learn more about Beazer’s Mortgage Choices program, visit our Beazer Homes website.