How to Shop for the Best Home Mortgage

If you’re in the process of purchasing your first home, one of your first decisions – even sometimes before your home – is which home mortgage is best for you. There are several different types of home mortgages, with each providing different benefits to a homeowner’s wallet. However, not every home mortgage will fit within your budget and long-term goals. Know the difference between these loans before you sign the paperwork.

Fixed-Rate and Adjustable-Rate Home Mortgages

Choosing between a fixed-rate or adjustable-rate loan is one of your first decisions. These terms refer to the interest rate and repayment options of the loan. All home mortgages fit into these categories, though some combine the two to form hybrid loans.

A fixed-rate mortgage has the same interest rate for the entire duration of the loan. As a result, your monthly payments will never change during the repayment period. Fixed-rate mortgages are available for both short-term and long-term loans. However, your interest charges will be higher under this option. If you want consistency and don’t mind the interest rate, a fixed-rate mortgage is perfect for you.

The interest rates for an adjustable-rate home mortgage change over time. With this option, you will be under a fixed-rate agreement for a period of time. After the fixed period ends, your interest rate will change annually or every few years, based on your agreement. While your payment amounts will fluctuate, you will pay a lower interest rate upfront.

Conventional and Government-Insured Mortgages

Next, you will have to decide if you want to take out a government mortgage or a conventional loan. A conventional home mortgage is administered by a private bank. It is not guaranteed or insured by a federal agency, unlike government-insured mortgage. You can combine these types of loans with the interest rate agreements we discussed earlier.

Government-insured home mortgages come in many varieties:
  • Federal Housing Authority (FHA) Loans are administered by the Department of Housing and Urban Development. These loans are available to all buyers and ensure the buyer against any borrower default losses. You can put down a small down payment, but you will need to pay for additional insurance.
  • VA Loans are administered by the Department of Veterans Affairs. Under a VA home mortgage, you are guaranteed and receive reimbursement for borrower default losses. In addition, you can receive 100% financing for your home purchase with no down payment. However, you must be a veteran or a veteran’s spouse to qualify.
  • USDA/RHS Loans are administered by the Department of Agriculture. These mortgages are offered to rural residents who meet income eligibility requirements – typically, this requirement is 115% or less of the area’s median income.

Jumbo and Conforming Loans

You will also need to choose the size of the home mortgage you want to take out. Two government-controlled securities corporations, Freddie Mac and Fannie Mae, set maximum mortgage size limits. If you borrow more than the Freddie and Fannie size limits, you will need a jumbo loan. If you borrow within the size limits, you will need a conforming loan.

Ready to apply for your Utah home mortgage? Contact Security Home Mortgage today to get started.