Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.
Are you ready to settle down, buy a home and make it your own?
Buying a home with some property is a great way to become self-sufficient. You can grow a garden and raise livestock, like goats and pigs! It can be a crazy, rewarding adventure!
To help you get started, PSECU created this home buying cheat sheet on the various factors to think about when choosing the best mortgage for you.
The Down Payment
Lenders generally require a 20 percent down payment. If you have less than 20 percent, you will likely be required to purchase private mortgage insurance (PMI), which will add to your monthly costs.
The U.S. government has several programs that insure mortgages and allow people to pay little or no money down. These loans thus require less outlay in a down payment and have lower monthly payments. They include the U.S. Department of Agriculture (USDA) rural development loan in qualifying locations, Federal Housing Authority (FHA) loans and Veterans Affairs (VA) loans for veterans of the armed services. The downside is you may have to pay a higher interest rate, which could outweigh the benefits of these programs over the long run.
Type of Loan
The lower the interest rate on your mortgage and the longer your loan term, the less your monthly payment will be.
Loans come in two types, adjustable rate and fixed rate. In an adjustable rate mortgage (ARM), the interest rate fluctuates. Usually, the rate is low the first several years, so monthly payments are low. However, it can go up sharply if interest rates rise.
In a fixed rate mortgage, the interest rate is always the same, so the monthly payment is always the same. This can be helpful in budgeting, as the amount you pay for the mortgage is predictable.
Popular mortgage term lengths include 15 to 30 years.
The best term for you depends on your goals and circumstances. With a 15-year mortgage, you will be paying more every month. If your goal is to own your property sooner, it will be yours at the end of 15 years. With a 30-year mortgage, the payment will be lower and you will pay more in interest in over the life of the loan.
It’s a good idea to check your credit score one year to six months before applying for a mortgage. Many lenders charge a higher interest rate to folks with lower credit scores. You can take steps to improve your score if it’s lower than it could be. The better your score, the lower your interest rate.
Mortgage lenders look very carefully at your income to see how much of a mortgage you can carry. Ideally, your mortgage costs should be no more than 20 percent of your take-home pay. The lender may approve you for a higher mortgage than what you really should take on.
You will have to show proof of income when you apply and submit a list of your monthly fixed expenses, such as utilities, other debt and so on.
Don’t forget to evaluate your mortgage by looking at the big picture when you add your mortgage costs to your home insurance and property tax costs. You will receive tax benefits when classifying your land as a homestead.
The most important thing you can do is to take time to do your research and ask questions when looking for a mortgage to buy a homestead.