Applying For A Home Loan? 3 Considerations To Help You Choose The Right One
Even though television and social media marketing suggests that applying for a home loan is a simple, painless process, mortgage applicants should still make sure that they have a good understanding of all the terms and information before they begin. While home mortgage interest rates remain very affordable in general, it is still critically important to understand how various home loan types differ in order to choose the one that will best fit the needs of the applicant.
The trade-off involved in FHA and VA home loans
Home loans offered by the Federal Housing Administration (FHA) and Veteran's Administration (VA) offer homebuyers the opportunity to purchase a home without having a large down payment or money saved to cover the closing costs. While this can be an attractive incentive to become a homeowner, buyers need to understand that taking advantage of this buying option will mean they have little or no equity in their home for the first few years of ownership. In addition, they will be paying mortgage interest on the loan, as well as any amount they allow to be added to the loan amount to cover their closing costs.
What to know about the loan approval amount
Another consideration when applying for a home loan is the loan approval amount buyers are given by the lender, based on their application and financial details. Prospective buyers who use the lender-approved amount to select the price range in which they shop for a home may be in danger of spending too much for their home. This can mean that their monthly payment may be more than they want it to be.
Instead of having the lender assign a price range, prospective buyers should first decide what size monthly house payment fits comfortably within their budget and use that as a guide to choosing the total amount they plan to spend on the home.
The true cost of PMI
Private mortgage insurance (PMI) is insurance coverage that protects the lender in case the buyer defaults. Buyers typically must pay for this type of coverage until they have a full 20 percent equity stake in their homes. Since PMI can easily add a couple hundred dollars or more to the average house payment, buyers can save a substantial amount of money on the overall purchase of their home by putting down a minimum of 20 percent when they purchase their home.
Prospective buyers who want to learn more about home loan products, including the benefits and disadvantages of each one, should make an appointment to have a confidential discussion with a trusted mortgage broker or bank loan officer in their area. Reach out to a company such as Unity West Lending to learn more.