Advice for Choosing the Best Mortgage Loan Program
Posted by David Schneider | May 19, 2007

Financing your home purchase has changed dramatically over the last 10 years. Traditionally, to qualify for a mortgage you had to fit within a rather limited borrower profile spectrum and you needed to be able to make a down payment of at least 20 percent of the home’s purchase price. After meeting the qualification criteria for a mortgage, you then had to choose between one or two mortgage programs. Today things have changed. You now can choose from dozens of mortgage programs and options. Also, you have just about as many options and ways to qualify for a home loan. This means that owning a home is more attainable for more people today. However, choosing the wrong mortgage loan program can create significant financial problems for you later. To avoid problems later, you need to learn how to choose the best mortgage loan programs for you.

Down Payment Options

The size of your down payment is going to be one of the biggest decision factors when you select a mortgage. When selecting a mortgage, you will want to weigh the pros and cons of each down payment option that you have. The first down payment option is the traditional 20 percent down payment. The advantage of this option is that it earns you a lot of instant equity in your home, it lowers your interest rate and it eliminates the need to purchase private mortgage insurance.

Your second option is putting five percent down. This down payment option is usually offered on first-time homeowner mortgage programs. This is a more affordable down payment for first time homeowners, and qualifying for FHA and other first-time homeowner mortgage programs is generally easier to do than qualifying for a traditional mortgage. The drawback to this type of down payment is that you will have to pay for private mortgage insurance. This can raise your mortgage by $100 or more a month.

Your final option is zero percent down. This option is offered by 80/20 piggyback loans and by exotic 100 percent financing loans. This is the most affordable down payment option. However, it also has the most long-term financial drawbacks, including higher interest rates and higher monthly payments.

Fixed-Rate vs. Adjustable-Rate Mortgage Options

When looking at mortgages, you will also want to select an interest rate structure that will maximize the financial benefits of your mortgage. If you plan to keep your property for a long time without refinancing or selling it, then a fixed-rate mortgage is your best option. It will allow you to lock in an interest rate when you first apply for your mortgage. This means that your monthly payments will not change through the duration of your mortgage’s life. This option is generally what you should select, especially if the current interest rates are low.

On the other hand, if you plan on refinancing your property, or selling the property within five years, then an adjustable-rate mortgage may be a good option for you to select. Generally, adjustable-rate mortgages offer you an extra low introductory interest rate. Either this loan perk will allow you to qualify for a more expensive home, or it will reduce your mortgage payment significantly during the introductory period. In order to cash out the financial benefits offered by this type of mortgage, you will need to sell or refinance the property before your first rate adjustment. This is a great mortgage option for real estate investors.