Home Loan Finance Center
How do you choose the Best Mortgage for you?
Since you’ll likely be paying back your mortgage over a long period of time, it’s important to find a loan that meets your needs and your budget.
Before you start looking for a home, there are critical elements that should be decided.
- Determine the best mortgage for your situation.
- Understand the approval process and criteria lenders utilize to qualify what you can afford to pay.
- Select a lender.
Determining the Best Mortgage
Today’s mortgage market offers you many choices for financing your home. But there is much more to the loan process than interest rates and points. When you are well educated in the mortgage process and your options, and have the proper information on all aspects of financing, you will be more comfortable in choosing the best program for you.
There are 3 main areas regarding your home purchase that ultimately affect what loan program is best for you:
Your Financial Status (Current situation and history)
(a) Your Assets and What Amount You will be Using for Down Payment and Closing Costs – It isn’t necessary to put 20% down on a home purchase – there are other options with lower down payments – your mortgage payment and interest rate will be a little higher, but if you don’t want to wait to save or use 20% it is possible if you qualify and are comfortable with the entire parameters of your financial situation.
(b) Your Income – Gross Income, type and length of employment, stability of your employment and the likelihood that it will continue
(c) Your Current Liabilities and Monthly Payments, and Your Credit History – The lender’s approval of your loan is primarily based on your available assets to purchase, and on acceptable ratios of both housing and total debt obligations to your total income.
(d) Your Total Monthly Housing Payment – Your ultimate home price that you qualify for and are able to purchase is really based on your total monthly housing payment – principal, interest, real estate property taxes, home owners insurance and any condo or HOA fees if that is applicable.
Your Future Plans or Time Horizon for your home
The plans you have for your home – how long you plan to live in it, the likelihood that you might be transferred or change employers; the likelihood that you will move due to changes in your family – a larger home for a growing family or downsizing when the children go off on their own; the likelihood that your income will increase substantially in the next few years.
Your Desires in a Home
The total price you will be paying for your home, your desired down payment and monthly mortgage payment.
A description of the different types of loan programs. There are primarily 2 types of loans – fixed rate and variable rate. There are more specific types of fixed rate loan variations – conventional, FHA and VA, Jumbo, and some areas also have City or County sponsored Down payment assistance programs for limited times.
Conventional and FHA loans are limited to the size of the loan and if the amount exceeds these limits they are referred to as Jumbo loans. Each year the FHFA reviews home price increases and therefore increases the loan limits for conventional and FHA loans effective January 1st of the year.
New Conventional and FHA loan limits for 2020 are listed below – click here to view the post for the full description
One-unit properties: $510,400
Two-unit properties: $653,550
Three-unit properties: $789,950
Four-unit properties: $981,700
FHA Loan limits vary by County more than the conventional – for the Southeast Florida area they range from $331,760 to 373,570, except for Monroe County which is $552,000. Click the link above for the full description.
In addition to having the cash for the down payment, closing costs and a good credit history, the mortgage lender will want your house payment and other debts to conform to accepted qualifying ratios.
- How lenders determine what you can afford and a One Page Worksheet that you can print and complete – it summarizes the categories and ratios listed above.
- Work on the Mortgage Calculators to determine your mortgage payment, affordability, how much do I qualify for and rent vs buy calculations.
While 28% / 36% are the most common, some lenders allow 33% / 38%, also called DTI or Debt to Income Ratio or Debt Coverage Ratio The 1st number is for the housing expense, (principal, interest, real estate taxes, home owners insurance and HOA) and the 2nd number is for total long-term expenses ( minimum credit card payments, installment loans, real estate loans, alimony, etc).