Choosing the Right Home Loan

Video transcript

Choosing the right home loan.

Your New American funding loan officer will be your go-to person for help. When examining your different home loan options, ask yourself the following questions - how long do I plan to stay in my home? Is my goal to build equity in my home?

How much have I saved for a down payment?

If you plan on staying in your home 7 years or less than an adjustable-rate mortgage or ARM, also known as flexible or variable rate loan, may be a viable option for you. ARM’s are often an extremely low introductory interest rate that lasts for a fixed amount of time, commonly three, five or seven years, and then the interest rate adjusts to market rates. If your plan is to settle down and stay in your home for ten years or more, a 10 year ARM or 15 or 30 year fixed rate mortgage may be worthy options.

With fixed rate mortgages, you can rest assured that regardless of the financial market, you'll be paying your agreed upon interest rate and mortgage payments.

What would be a good option to build equity in your home? To build equity in your home, some good choices would be a 10-, 15- or 20-year fixed rate mortgage. You’d pick this type of mortgage because it allows you to build the equity in your home faster than other mortgage products available. Every month as you make your payments, you increase your equity. As you owe a little less, you own a little more. When you build equity, you are increasing the net value of your asset equity and are increasing your net worth.

How much have you saved towards a down payment? Some loan programs require a higher down payment in exchange, oftentimes for a lower interest rate. There are also some programs that specifically help those that don't have a large sum to put towards a down payment. This is very common for first time home buyers.

Tip: Don’t forget to lock in your rate. A mortgage rate lock protects you from the market rate fluctuations while you wait for your loan to be approved, processed, and funded. Also called a mortgage lock in or rate commitment, secures or locks in a certain interest rate and points for a specified amount of time. Therefore, as you shop rates among the different lenders, don't rely on the interest rate in terms of the lender quotes unless the lender is willing to offer a lock in. A mortgage rate lock is the only guarantee that you will receive these terms at the time your loan is approved.

Also, in conjunction with submitting a loan application, your loan officer will likely order an appraisal of the property. An appraisal determines the market value of a home. The lender will require an appraisal prior to officially approving any loan. Therefore, the lender will be very proactive about ordering the appraisal early on in a loan process. In fact, you will usually pay for the appraisal upfront when applying for a loan. If the appraisal of the property comes in lower than the sale price, the lender will probably deny the loan. There are certain measures that may be taken in order to acquire the loan. The seller agrees to reduce the price. The buyer is able to make a reasonable down payment. Repairs can be made to increase the value of the home. These actions will increase your chances of getting approved for the loan.