Comparing Your Mortgage Loan Options 

Buying a home can be a complex and difficult process. It includes many steps and considerations that first-time buyers may not anticipate. Mortgages are a crucial step in this journey—but with rising rates and many different lenders to choose from, it can be hard to organize your thoughts and compare your options.  

It’s a good idea to compare at least two different lenders to ensure you’re getting the best rate and terms. You’ll need a way to remember who offered what along with other intricacies like closing costs or specific penalties for missing your mortgage payments. 

Innago’s mortgage comparison worksheet will help you create an overview summary of each lender and loan you’re considering so you can choose the best option for you.   

Types of Mortgages 

Before you start reaching out to lenders, it’s a good idea to be clear about what type of mortgage you want. Do you need a fixed-rate mortgage or an adjustable-rate mortgage? Conventional or government-backed? 

Fixed-Rate Mortgages

Fixed-rate mortgages are the most common type of mortgage. The interest rate on this type of loan remains the same for the entire length of the loan. So, if you prefer the security that comes with knowing your rate and monthly payment schedule will not change, you may want to consider a fixed-rate mortgage. If mortgage rates increase, you don’t have to worry about your monthly payments becoming unaffordable. If rates drop, however, you can always refinance and take advantage of lower loan rates.  

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARMs) are less common than fixed-rate mortgages, but this type of loan is preferred in some circumstances. Adjustable-rate mortgages have a locked-in mortgage interest rate for a set amount of time, after which the rate fluctuates for the rest of the loan’s duration. One advantage of an adjustable-rate mortgage is that the interest rate will typically start lower but has the potential to increase once the lock on your interest rate ends. It’s important to keep in mind that many ARMs do have a limit on how much your rate can increase or decrease. 

Generally, if you plan on staying in a home for over ten years, a fixed-rate mortgage is the smarter option. If you plan on moving before then, an ARM may be the route to choose. 

FHA Loans

Federal Housing Administration (FHA) loans are mortgages that are insured by the federal government. These loans are backed by a lender who is approved by the FHA. 

Many low- and middle-income families buy their first homes using FHA loans because they are provided by banks and financial institutions that are already approved, making the loans government-guaranteed and therefore less risky for lenders. The lenders can then take on borrowers that may be less qualified than others.  

There are many reasons that someone may be seen as a riskier borrower than others. Private conventional loans generally have strict credit and down payment requirements, barring many young or low-income buyers from being accepted.  

One thing to note is that those who choose to take out an FHA loan do have to pay for mortgage insurance. They also have to pay monthly FHA premiums.  

Conventional Loans

Convention loans are private mortgages. These are typically offered by either a bank or credit union.  

Conventional loans have higher interest rates that are fixed, and you’ll find that the requirements to be accepted for a private, conventional loan are stricter than many other types of mortgages.   

Conforming loans are conventional loans that meet the FHA federal dollar limit. 

Comparing Lenders and Loans 

For first-time homebuyers, it may seem daunting to inquire about mortgages from lenders. Here are a few questions you should ask a lender while mortgage shopping that you may not have previously thought to ask.  

Many unfamiliar mortgage borrowers are unaware of PMI, or private mortgage insurance. Some conventional loans require PMI, and it protects the lender if you default on your loan. After asking whether PMI is required, inquire about what the premium is, or what the duration of your insurance policy would be.  

You also may ask about any other additional fees, like whether you would be required to get home/pest inspections, title searches, related state and local taxes, or applicable third-party fees.  

It’s also a good idea to ask about prepayment penalties, whether there is a lock-in agreement, and what the estimated cash to close would be on the mortgage. For each of these questions, if there is a fee necessary, ask how much the fee is and how long the term of the fee would be.  

The more questions you ask, the better prepared you are as a borrower. No one wants to be surprised by additional fees or stipulations you were not aware of prior to borrowing. Keeping track of the answers to these questions on a mortgage worksheet or mortgage comparison tool will help you stay organized and keep your options straight. 

Benefits of Professional Support 

Professionals like mortgage brokers or HUD-certified housing counselors are trained to offer advice and help you make sound financial decisions when buying your new home.  

These professionals can help you improve your credit, give you personalized recommendations on neighborhoods or housing types, and help you determine if you’re ready to purchase a home. They can help guide you on what your options are for your down payment, realtors, and mortgage types.  

Seeking professional advice can help you find potential lenders and loan offers to research further. Tools like our mortgage comparison worksheet or a mortgage calculator can also help you save money and make a more informed decision. Though professionals and tools can assist you in finding good lenders to choose from, it’s ultimately up to you to decide which home loan option to go with, based on your personal situation and needs. 

Conclusion 

If you aren’t familiar with any of the terms in our mortgage worksheet, continue with your own research into the mortgage lending process or contact a real estate professional to help you navigate them. This worksheet will help you gain a bird’s-eye view of your options, allowing you to realize what strengths and pitfalls each one may have. You’ll more easily see which lender and mortgage fits your specific needs for the loan amount you require.