Here’s Why Playing It Smart With Your Mortgage Can Save You Cash
Choosing the right mortgage loan could keep more money in your pocket while still helping you finance your dream home.
A mortgage is one of the biggest debts most people will take on throughout their lifetime. Understanding the various types of mortgages available to you will help make the right financial decisions.
Types Of Mortgage Loans Available
There are various types of mortgage loans available to prospective homeowners. Some of these are fixed-rate loans and adjustable-rate mortgages. While these are both great for first-time home buyers, they can also be very risky.
An adjustable-rate loan is typically a type of loan that has a variable interest rate. This type of loan can save a borrower thousands of dollars annually, but it also has the potential to increase monthly payments.
An FHA loan is a type of home loan that’s backed by the Federal Housing Administration. It’s usually preferred by first-time homebuyers due to its low down payment. However, it comes with a higher total cost and a lifetime loan expense.
VA loans are exclusively for current and former military members and veterans. The Department of Veterans Affairs guarantees these loans. With no down payment, VA loans are great for first-time home buyers.
Conventional loans are classified as non-conforming or conforming. These loans are not subject to the same rules as conforming ones. Conforming loans are those that are approved by the government-sponsored mortgage companies Fannie Mae and Freddie Mac.
Most conventional loan programs require a minimum credit score of 580 and a debt-to-income ratio of less than 40 percent.
The right mortgage can affect your financial future as it can help you save money and build a stronger financial foundation. There are many reasons why choosing the right mortgage can make a huge difference in your financial future.
1. It Can Raise Your Credit Score
Getting into a mortgage can affect a person’s credit score temporarily. However, this is not the reason to panic as banks and lenders only look for the ability to pay back the loan in full.
A mortgage can improve your credit score significantly more than paying off a credit card. Even though paying off a loan is not an exact indicator of a credit score, it can help boost it.
2. You May Pay Less In Interest
By choosing the right mortgage, you can lower your monthly payment over time.
The numbers are based on various factors such as credit score, home loan amount, debt-to-income ratio, and more. They should be consulted before committing to a loan.
3. It Can Help Control Your Debt-To-Income Ratio
A mortgage debt-to-income ratio is a vital part of a home loan’s application. It shows how much debt the borrower has and how they’ll be able to pay off in the future.
4. It’s Good Budgeting Practice
Having a mortgage is a great learning experience for both new and seasoned home buyers. It’s also important to set up an emergency fund to cover unexpected expenses. Having a budget helps avoid accruing additional debt.