When it comes to mortgages, one size does NOT fit all. So, even though you may already feel overwhelmed with everything else involved in buying a home, you still need to research and shop in order to decide which loan is right for you. You will need to consider your unique financial situation and needs, as well the different terms offered and fees charged by various lenders. Here, then, are the major components of how to decide which loan is right for you when buying a house in Los Angeles.
Evaluate YOUR Situation and Circumstances
The absolute first step to decide which loan is right for you is to take a careful, objective look at your own unique situation and needs. Doing this can help you choose a loan that is the best fit in terms of financing options and includes:
Carefully consider the cost of the home as the largest determining factor in the size of your monthly mortgage payments. Can you comfortably handle those monthly payments?
OVERALL FINANCIAL AND CREDIT HEALTH
Financial experts also recommend that you take a close look at your financial and credit health. “Your credit history and the amount you have for your down payment can affect your loan options. People with high credit scores are generally able to get mortgages with lower interest rates. Similarly, a larger down payment can help you pay less in interest overall.”
LIFE GOALS AND PLANS
To decide which loan is right for you when buying a house in Los Angeles, you also need to look into the future a little. Statistics show that on average Americans move about 11.4 times during their lifetime. How long you plan to stay in the home will determine in large part which loan is right for you.
Carefully Consider Loan Options
After evaluating your situation, your next step will be to carefully consider your various loan options. This will generally involve three major considerations: the length of the loan, the interest rate and type, and the type of loan.
LENGTH OF LOAN
The standard, typical loan terms are either 15 years or 30 years (although others may be available in certain cases). With a 15-year mortgage, you will be making monthly payments for a shorter period, but your monthly payments will be higher. With a 30-year mortgage, your monthly payments will be lower, but you’ll pay more in interest over the life of the loan. Which option is best for you?
INTEREST RATE AND TYPE
The two basic types of mortgage interest rates are fixed rate and adjustable rate. A fixed rate mortgage, as the name suggests, remains the same over the life of the loan, which means that mortgage payments remain the same, the option nearly three-quarters of borrowers choose. An adjustable-rate mortgage, on the other hand, does change. Typically, with this type of mortgage interest rate, you pay less in interest each month at the beginning and more later on. This is often best for people who intend to sell the home after just a handful of years.
TYPE OF LOAN
In broadest terms, there are three major types of loans: conventional, FHA, and special program. Conventional loans are the most familiar, the ones that come from banks or credit unions without any connection to a government program. FHA loans are backed by the Federal Housing Authority and often require smaller down payments and lower credit scores. And then there are the special program loans, many of which require no down payment. But keep in mind that each type of loan has its own set of advantages and drawbacks.
Be Aware of All Costs and Fees
In order to decide which loan is right for you when buying a house in Los Angeles, you definitely must be aware that there are many other borrowing costs beyond the interest you’ll have to pay. You will also have to take into account points and a host of associated fees.
Points, for example, are fees you can pay right up front to lower interest payments over the life of the loan. Doing so is a good idea for buyers who plan to stay in the home for many years because this will lower payments over the long haul.
You also have to figure in the many other fees, such as loan origination fees, mortgage insurance (in some cases), closing costs, and title searches. Some mortgages will roll these into or bundle them with the loan so that they don’t have to be paid all at once up front. So be sure to carefully read your Loan Estimate. This is a document the lender is required to give you within three business days of receipt of your application. It will spell out all the mortgage details, including interest rate, monthly payment amount, and total closing costs.
The Bottom Line is More Than the Bottom Line
So, to decide which loan is right for you when buying a house inLos Angeles means considering more than just interest rates and monthly payments. You also have to consider your financial situation, your credit health, and your long-term plans. And you also need to research and shop. This can certainly seem overwhelming, but there is help available.