If you’re in the market to apply for a mortgage to buy a home in Washington State, Oregon, Colorado, Idaho, there is plenty to think about. There are different types of mortgage products available, and the one you choose should be best suited for your specific financial situation.
If you’re wondering how to find the mortgage that’s right for you and make the right choice in 2019, consider the following.
Look at the Interest Rate
The interest rate that you are charged on your home loan will have a direct impact on how affordable or expensive your loan will be. The higher the rate, the more money you’ll end up paying by the end of the mortgage term.
As such, it’s always best to secure a lower interest rate as possible, as this can effectively save you tens of thousands of dollars over the life of the loan.
The rate you’re charged will depend on a number of factors, including the current market, the lender, your down payment amount, and your credit rating.
But in addition to the actual interest rate itself, you’ll also want to consider whether or not you want to lock in a rate with a fixed-rate mortgage or go with an adjustable-rate mortgage.
A fixed-rate mortgage means the rate will never change. Many borrowers prefer this route because it makes budgeting much easier as the monthly payments never change. Having a predictable payment to deal with every month is often a more attractive option.
Further, if rates are expected to increase sometime soon, locking in at a lower rate today might make more financial sense.
An adjustable-rate mortgage (ARM), on the other hand, means the rate will fluctuate at specific intervals. They typically start off with a low-rate introductory period, which is what attracts borrowers to them in the first place.
Once the initial period ends, the rate will change, and so will the monthly payments. Depending on the market, the rate could either go up or down. These types of mortgages are better suited for those with an appetite for risk or who are planning to sell their home before the introductory period ends. Paying a lower rate during this initial period can save hundreds of dollars a month.
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Consider Open or Closed Mortgages
An open mortgage is one that can be paid off any time without being subject to an early payment penalty. They can also be negotiated for much shorter terms and are better suited for buyers who plan to sell in the near future. They’re also well-suited for those who appreciate more flexibility to be able to make big lump-sum payments before the maturity date.
A closed mortgage, on the other hand, is one that has a prepayment limit, meaning that only a certain amount of the principal amount can be paid every year without the ability to make larger lump-sum payments without paying a penalty.
Look Into Conventional or Government-Backed Loans in WA, OR, CO, ID
You can choose to either go with a conventional mortgage or a government-backed loan.
A conventional loan is one that is provided by banks, credit unions, and mortgage lender and requires a large down payment and good credit to qualify for. Since these loans are not backed by an outside entity – such as the government – they pose a greater risk for the lenders who provide them.
Borrowers must put down at least 5%, though the exact amount required will depend on the lender and the borrower’s credit health.
Government-guaranteed loans, such as FHA loans or VA loans, are mortgages that are backed by the government. These are more attractive for borrowers who don’t have a lot of money saved up for a down payment or don’t have a great credit score, as the requirements are laxer compared to conventional mortgages.
Consider the Loan Amount For Your Mortgage in Washington State, Oregon, Colorado, Idaho
The price of the home you intend to buy in WA, OR, CO, or ID coupled with the amount you can come up with in the form of a down payment will determine the size of the loan you need to apply for. But the amount of money that you need to take out will also determine the level of risk on the part of your lender.
The bigger the loan amount required, the higher the lender’s risk. And the more risk that the lender takes on, the higher the interest will be. As such, mortgages are typically categorized under two main categories: conforming and non-conforming.
A conforming loan meets the criteria set forth by Fannie Mae or Freddie Mac, which are government-sponsored mortgage entities. Basically, a conforming loan is a mortgage loan that adheres to Fannie Mae or Freddie Mac guidelines. In 2019, conforming home loans in Washington State, Oregon, Colorado, Idaho are limited to $484,350, with the exception of certain counties.
A non-conforming loan – also referred to as “jumbo loans” – are those with loan amounts that are higher than the conforming loan limits. For obvious reasons, jumbo loans riskier for learners because of their high loan amounts, and therefore tend to come with higher interest rates to offset these risks and protect lenders.
Non-conforming loans typically require a larger down payment and excellent credit to qualify.
Final Thoughts on How to Find the Mortgage That’s Right For You
Your financial health, credit history, appetite for risk, and the price of the home you plan to buy in Washington State, Oregon, Colorado, Idaho will determine which route to take in terms of the type of home loan to go with.