Understanding Your Mortgage Options: Determining Your Home Buying Budget
There are a number of mortgage options available to you when you are buying a home. What your budget will be for buying a home will depend on several factors. Your credit rating will play a significant role in the percentage rate that you pay, while your income will help guide your lender to determine how much you can borrow for your new home. Your down payment will matter, too, as when you are able to put down 20% of the house price you can avoid adding on PMI to your mortgage payments. Whether you are buying a home for the first time or you have purchased several homes, understanding the mortgage options available to you is essential.
The Fixed-Rate Mortgage
The fixed-rate mortgage is a standard mortgage option for those that like to depend on making the same payments throughout the term of the loan. It is easy to make a monthly budget when you get a fixed-rate mortgage, and this type of assurance is why many people choose a fixed-rate mortgage. The most common repayment periods chosen for a fixed-rate mortgage are 15, 20 and 30 year options. This is a great mortgage if you believe that mortgage rates are going to rise in the near future and you don't want to get stuck paying higher interest rates. The amount you can borrow will be based on your estimated monthly payment and your current income.
The Fixed-Period Adjustable-Rate Mortgage
This type of mortgage is an excellent choice when mortgage rates are a bit high and expected to go down within a few years. The mortgage begins at a fixed-rate for a period of 5, 7 or even 10 years. At the end of this period, the mortgage rate changes to reflect current mortgage rates. If the mortgage rates go down at the end of your fixed-period, you will begin making lower mortgage payments. This is not a good choice if mortgage rates are currently low and you are qualified for a fixed-rate mortgage. While the amount you can borrow will be based on your initial payments, you will have to consider whether you will be able to afford a higher payment at the end of the fixed-rate period before you secure this type of loan.
If you are a first time homebuyer, you may qualify for an FHA loan, which is government insured, and a great choice for people with limited income and a small down payment.
Real estate businesses, such as Gavigan Homes, can provide more information.
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