How Do I Know I'm Getting a Good Mortgage?
With so many different mortgage products available, it can be hard to know if you got a good deal on your home loan. However, there are some metrics that you can look at to figure out if your deal was in line with what other homeowners pay. Let's take a look at what makes a good deal when it comes to financing your home purchase.
Did You Get a Traditional or Government Loan?
If you are looking to minimize your down payment, an FHA or USDA loan could be your best bet. However, if you were looking to build equity faster, a traditional loan is best as it requires a 20 percent down payment. Traditional loans are also better for those who want to avoid mortgage insurance. Of course, if you have a low income or short work history, government loans are often easier to qualify for. For example, VA home loans have easier qualifications than non-government loans.
How Long Is Your Loan Term?
In most cases, homeowners opt for a mortgage that is paid over thirty years. However, you can choose to pay your loan off in five, ten, or fifteen years instead. When negotiating the final loan terms, ask that your lender remove any prepayment penalties. This makes it possible to pay your loan off when it is convenient for you, and it also makes it possible to refinance your loan in the future.
Interest Rates Are Generally Below 5 Percent
Many potential homeowners wonder what a good mortgage rate is. If you have good credit, you should get an interest rate of less than 5 percent for a fixed-rate loan. Variable rate loans should come with an interest rate below 4 percent for a 30-year term. However, your interest rate will generally come down if you choose a 10-, 15- or 20-year term.
You Can Always Refinance Later
Even if you can't qualify for your preferred loan product today, you can refinance as your circumstances change. For instance, you could decide to switch from a variable loan to one with a fixed rate to make it easier to create a long-term budget. As your credit improves, it may also be possible to get rid of mortgage insurance.
The best mortgage is one that you can afford and that allows you to avoid being house poor. A real estate agent or mortgage broker may be able to provide insight into which type of loan best meets your needs and why that is the case. And before you know it, you’ll be able to buy a house that you love and can afford.