Choosing the best 1st mortgage loan can depend on a variety of factors, including your credit rating, income, and the current economic situation. The first thing to do when looking for a 1st mortgage loan is to determine whether there are any special programs available for first time homeowners. These programs are offered from time to time, and may provide benefits that could change the type of loan you want. Your credit rating will also play a large role in the type of loan and interest rate you qualify for. It is often best for a first time homeowner to look for a fixed rate, 30 year loan, though certain circumstances may lead to different choices.
Programs that are instituted to help first time homeowners are offered from time to time. If one of these programs is available, it may dictate the best 1st mortgage loan for you. These programs sometimes offer tax refund incentives, preferred interest rates, or other benefits. A financial counselor or mortgage officer will typically be able to help you determine the best type of loan to use with any program that is available to you.
If you have good credit and savings, you typically will want to get a traditional fixed rate loan. The amortization period is often between 10 and 30 years, and longer loans tend to offer lower monthly payments. A large down payment can reduce the total amount you will owe over the life of a loan, and a process known as buying points can do the same thing. Buying points essentially involves paying up front to reduce the interest rate.
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In some cases, an adjustable rate mortgage (ARM) can be the best 1st mortgage loan. Before taking out such a mortgage, you will want to understand exactly what it entails. Each ARM will have slightly different terms, though they all feature interest rates that can increase dramatically. There will typically be a maximum amount that the rate can increase each year, and also a lifetime cap.
ARMs are typically considered undesirable, though they can provide you a way to get your 1st mortgage loan if your credit is poor. Bad credit can result in higher interest rates, so the lower rate associated with an ARM may allow you to get into a house while you repair your credit. Another reason an ARM may be a good 1st mortgage loan is if interest rates are abnormally high but show signs of dropping within a few years. In cases like these, you may want to acquire an ARM and then refinance into a traditional fixed loan once you qualify for a good interest rate.