Top 4 Factors To Consider When Choosing Your Mortgage

Securing a mortgage can be challenging due to high home prices and interest rates. However, many homebuyers find a loan that fits their needs. According to a Bankrate survey, 69% of homeowners say they'd repurchase their current home.

Consider more than just interest rates and terms to find the right mortgage. Think about how the loan aligns with your finances and lifestyle. Ask yourself: Are you comfortable with uncertainty or prefer predictability? Can your budget handle rising payments if rates increase?

Here are four key factors to consider when choosing a mortgage:

1. Your Credit Score

Your credit score influences both your interest rate and loan options. 

- For conventional loans, you'll generally need a FICO score of at least 620. 

- USDA loans require a score of 640, while jumbo loans often need 700 or higher. 

- If your score is lower, you may qualify for an FHA loan with a score of 580 or higher or a VA loan with a score between 580 and 620. 

- If possible, work on improving your credit to secure a better interest rate.

2. Your Income and Expenses

Lenders evaluate your ability to repay the loan by assessing your income and debt. 

- Lenders prefer that your housing costs don’t exceed 28% of your income and total debt (including mortgage) doesn’t exceed 36%. 

- Your debt-to-income (DTI) ratio is a key factor—high DTIs often lead to rejection. 

- FHA, VA, and USDA loans may allow for higher DTI ratios, but your credit and savings must be strong.

3. Your Expected Down Payment

The size of your down payment affects the type of loan you can get. 

- Conventional loans typically require at least 5-20% down. 

- FHA loans require just 3.5%, while VA and USDA loans may not require a down payment. 

- A smaller down payment means higher monthly payments and possibly mortgage insurance (PMI or MIP).

4. Your Lifestyle and Risk Tolerance

Your mortgage should match your financial comfort and long-term goals. 

- Fixed-rate loans offer predictability but higher long-term costs. 

- Shorter loan terms save on interest but have higher monthly payments. 

- An adjustable-rate mortgage (ARM) might offer lower payments initially but carries the risk of future rate increases, making it suitable for shorter stays.

Bottom Line

Shop around to find the best mortgage terms. Many homebuyers leave money on the table by sticking with the first lender they meet. If you need guidance, our network of mortgage professionals can help you find the right loan for your needs. Contact us to get started.

*This content is for informational purposes, not financial, legal, or tax advice. Consult professionals for personalized advice.*

Sources:

Bankrate

Bloomberg

Lending Tree

National Association of Realtors