How to Finance a House in an Uncertain Economy with a Conventional Mortgage
Buying a house is something many people dream of. However, when the economy is uncertain, the thought of taking on debt and moving out of a rental property that you know you can afford is stressful, to say the least. Believe it or not, buying a house in an uncertain economy isn’t just possible—it’s a great idea. You just need to figure out how to finance the purchase.
A conventional mortgage is one of the best ways to buy a house regardless of the economic situation. It provides you with stability and gives you the money you need to get into a house you’ll love. Here’s what you need to know about using this type of conventional loan.
Choose the Right Type of Loan
When you’re shopping for traditional mortgages, you will have several different types of loans to choose from. These include fixed interest rate loans and variable interest rate loans.
Fixed interest rate loans let you lock in the interest rate for the full length of the loan’s term. This means it won’t change even if the interest rates continue to rise at the federal level. Adjustable-rate loans have interest rates that change with the market. When the market interest rate increases, the rat on your loan will increase, too. If the rate goes down, your loan’s interest rate will go down as well.
The best thing you can do to decide which loan is in your best interest is to look at the economy. If the interest rate is incredibly low at the time that you’re applying for the loan, a fixed rate will be in your best interest. You’ll be able to lock in the low interest rate until you repay the loan completely.
However, if you plan to pay off your mortgage quickly or think you’ll sell your home in the near future, an adjustable-rate mortgage may be your best option. These mortgages have low initial interest rates that are locked in for a set number of years. The exact length of time will be outlined in your loan agreement. If you’re going to pay the loan off soon or plan to sell the property, you’ll benefit from that lower interest rate more than you would a fixed-rate loan.
Get Quotes from Different Lenders
No matter what type of loan you choose, you’ll want to shop around with different lenders. This is because different lenders look at your financial situation in different ways. One lender might approve you for a small home loan while another may approve you for more than you need.
Get quotes from several companies and compare the quotes in detail. Choose the lender that you’re most comfortable with. For most homebuyers, this means picking a lender that offers you the highest approval amount and the best interest rate.
The lower your interest rate is, the less you’ll pay over the life of the loan. Keep in mind that you should only plan to borrow what you can afford to repay. If you think the monthly payments are too high for the amount you’re approved for, consider buying a cheaper house. Otherwise, you’ll struggle to maintain your budget and make payments on time.
Figure Out Your Down Payment
Traditional mortgages, whether they have fixed or adjustable interest rates, often require that you put a down payment on the property. In most cases, the down payment will be about 20% of the home’s sale price.
If you don’t have money saved up, start looking at ways to set money aside. The more money you have to use toward a down payment, the smaller your home loan will be. This can save you thousands in interest costs over the years.
That said, if you don’t have the full 20% to put toward a house, you can still qualify for a home loan. You’ll just need to take out a private mortgage insurance (PMI) policy to give the lender peace of mind.
If you’re planning to buy a house this year, keep these things in mind when you start shopping for a mortgage.