The Dating Game: Mortgage Edition
Welcome to The Dating Game: Mortgage Edition
Our contestant today is a first-time homebuyer who is trying to break into the market as soon as possible so she can start building equity as soon as possible. She has good credit, but she could have more in her savings. She is hopeful there is a financing solution for her.
Let’s meet her potential mortgages:
Mortgage #1: Fixed-Rate Loan
Our first mortgage option is a popular and very dependable solution. This type of conventional loan will stay at the same mortgage rate for the life of the loan (usually 30 years) and will only change if our contestant decides to refinance. This loan is ready for the long haul and will be reliable and predictable for years. This mortgage has higher standards as far as credit, savings and debt-to-income go, but if she can qualify and plans on staying in her new home for a while, this may be the best match for her.
Mortgage #2: Adjustable-Rate Loan
Mortgage number two is also a conventional loan, but is a bit more of a risk-taker. Certainly, there are some real advantages that our contestant may find enticing. This solution offers lower rates, at least for the first few years, which may be perfect if our contestant doesn’t plan to stay in this first home very long. This option may also make it easier to secure a larger loan, but is our contestant ready for the possibility that a rate jump could make her monthly payment a burden down the line? She will have to consider if the perks of this option make up for the added uncertainty and complexity.
Mortgage #3: FHA Loan
Our last mortgage option is open-minded and forgiving. This solution isn’t as picky about credit scores and won’t demand as much for a down payment. Mortgage number three understands life can be tough and will more easily look past higher debt-to-income ratios. Because the FHA loan is government-backed, this solution may allow for a lower interest rate, too. Our contestant should consider that, although the entry barriers are lower, she may pay more in the long run due to drawbacks like higher APR due to added fees and requirements like mortgage insurance. This option may also limit our contestant’s options in the market as she will find that inspection requirements are more stringent and some sellers may be unwilling to accept an FHA loan. But if she is ready to take it on, the FHA loan could be her ticket to homeownership.
Our contestant has three great options to consider all of which have something to offer her. Which will she choose? Luckily, she won’t have to decide blindly. She has an experienced Realtor® who can help her weigh the options and find a qualified lender that fits her needs. In fact, her Realtor® can help her find alternative loan options or assistance programs that can open up her options even more.
Join us next time on The Dating Game: Mortgage Edition!