Buying a home is a dream come true for many people. Unfortunately, many are unable to own a home in their lifetime. One of the primary reasons for this is that they cannot afford mortgage payments.
Put simply, mortgage payment refers to the amount an individual pays for getting a home loan. This includes the principal & interest, taxes, and insurance.
Different factors can influence your mortgage amount, knowing these factors can help you get a mortgage loan that you can afford.
The following are the main factors that can affect your mortgage loan amount:
Home buyers can choose from an array of loan products, including FHA, VA, USDA, fixed-rate, adjustable-rate, and more. Each type of loan has its own eligibility requirements, conditions and features. At the same time, rates can differ from one loan to another. The VA loan, for example, does not require down payment and offers 100% financing. VA loans are guaranteed by the Veterans Affairs Department or VA.
Your loan payment will depend on the type of type you choose. Speak to multiple mortgage lenders to select the best loan for your financial needs.
The total amount of a loan affects the mortgage rate. Lenders are likely to charge a higher amount on a small mortgage loan. On the other hand, an excessively large loan is considered risky. Therefore, your mortgage lender may charge you more.
The golden rule is the larger the down payment, the lower the interest rate. By paying a large down payment, your lender will view you as a low-risk borrower.
Try to make at least a 20 percent (or more) down payment. If you cannot do so, a lender can ask you to buy mortgage insurance. This insurance will protect the lender if you are unable to pay the loan.
Loan term is the life of the loan. In most cases, short-term loans lead to lower interest rates. On the other hand, the longer the loan term, the higher the interest rate. Long-term loans are considered riskier than short-term loans.
There are two types of interest rates, fixed and adjustable. Fixed interest rates remain constant, while adjustable rates are fixed for a certain time period and then they adjust annually with the market.
The initial interest rate is lower with an adjustable loan, but the rate might increase or drop significantly later on depending on market conditions.
Last but not least, lenders will look at your credit score before processing a home loan. Credit score determines your creditworthiness. It reflects your ability to repay the loan. A good credit score usually leads to reduced mortgage interest rate.