Mortgage interest rates are important. But other terms of the loan can be even more important especially if you’re not planning on sticking with the mortgage loan forever. If you don’t have 20% down payment most probably in 2-3 years you’ll be refinancing and this will reset your mortgage rate anyway. And if you’re in California refinancing may be a good option sooner than you think! Personally I was able to refinance in less than a year as prices in Los Angeles skyrocketed this year.
So how to find a mortgage that’s best for you?
First off how much down payment can you afford?
Veterans have an option of getting a VA loan with 0% down payment.
If that doesn’t apply to you, the lowest down payment will be 3.5% – FHA loan. If you’re buying single family home or duplex, obtaining an FHA mortgage should be difficult unless there’s something majorly wrong with the property; something that can’t be fixed during escrow.
When buying multi-family property 3 or 4 units getting FHA mortgage is a little tricky as there are special rules like FHA self sufficiency rule. Due to Los Angeles rent control this rule may be a huge obstacle in getting FHA mortgage. You have to find a loan officer who has a rack record of closing this type of loans as majority of loan brokers will give up in a week 2 or 3 of processing your loan. This may kill your home purchase very easily.
What is the source of down payment?
FHA lets you use gifted cash towards your down payment. Other loan programs will require that cash needed for down payment was properly documented on your bank account. Majority of lender will require “seasoning” of the down payment money for two to six months.
How long will you keep the property?
If you’re a first time home buyer and you know in a few short years you will need to upgrade then 30 year fixed mortgage is bad idea. You can get much better rates choosing 3 or 5 year ARM (adjustable rate mortgage). This way your rate will be fixed for 3 or 5 years and after that you’ll either sell as you originally planned or refinance your mortgage to current market rate.
These are the basic answers you need to have as most probably your best mortgage option will be one of these three – FHA, 30 yr fixed or 5 yr ARM
There are other loans for borrowers with more specific needs – renovation / rehab loans, bridge loans, interest only loans, balloon mortgages and many more. Stay tuned for more post on how to choose a best loan option.