5 Tips for Getting the Best Mortgage for Your Situation

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Getting the right mortgage requires improving your credit, considering your goals for the loan, and shopping around with different lenders. Find out more. 

There are many different mortgage options, including government-backed loans, such as FHA loans, and conventional loans with no government guarantees.

There are also 15- or 30-year loans, and fixed-rate vs. adjustable-rate mortgages. Fixed-rate loans have the same monthly payment for the life of the loan, while adjustable-rate loans have payments that can change based on a financial index.

You’ll need to carefully consider all of the mortgage options available to you so you can get the right home loan for your specific situation. Here are five tips to help you do that.

1. Consider your credit score and debt levels

Your credit score and the amount of debt you have are going to impact what type of mortgage you can get.

If you want a conventional loan, you’ll probably need a credit score above 620, and your total debt including your new mortgage will need to be below 36% of your income with most mortgage lenders. You’ll also need a down payment of around 3% minimum.

If you can’t meet these criteria, you may need to look into alternatives such as FHA, VA, or USDA loans. Since these loans come with a government guarantee, although they are issued by private lenders, they can be easier to qualify for if your financial credentials aren’t perfect.

2. Make a large down payment when possible

If you can make a down payment of around 20%, you should be able to get the best rate possible on your home loan, have the broadest choice of lenders, and avoid having to pay premiums for private mortgage insurance that add to your monthly payments but only provide actual protection for lenders and not you.

If you are not able to put 20% down, try to put as much down as you can. While there are loans available with 3% down or even no down payment at all, they often come with higher interest rates and higher upfront fees.

3. Think about how long you’ll be living in the house

You’ll need to consider how long you plan to stay in the home when deciding what kind of mortgage is right for you.

If you plan to move within a few years, an adjustable-rate mortgage (ARM) that has a lower starting rate than a fixed-rate loan could allow you to benefit from lower monthly payments during the time you’re living at the property. Just be aware that if your plans change and you don’t move before your rate begins adjusting, you’ll face the risk of higher monthly mortgage payments if rates rise.

If you plan to stay in the home for a long time, a fixed-rate loan can provide you with certainty since your payment won’t change for the life of the loan. You may even decide to pay mortgage points, which means you pay about 1% of your home’s value upfront in order to reduce your interest rate by 0.25%. This could pay off for you over time if you stay in your home long enough to pay off the upfront costs of the points and continue to enjoy the interest savings.

4. Shop around among many different lenders

There’s a wide variation in loan terms offered by lenders, so it’s a good idea to shop around among many different loan providers to see which one offers the best deal. Try to get at least three quotes — and ideally more — from lenders that will give you a personalized rate estimate without a credit check so your credit score isn’t affected by your comparison shopping.

5. Consider the opportunity costs

Finally, consider the opportunity costs of different kinds of mortgages. For example, a 15-year mortgage may seem attractive since the interest rate is usually lower and you’ll be debt-free more quickly. But your monthly payments will be higher with a 15-year loan, so you need to consider the opportunity cost of tying up more money.

By thinking about all of these issues, you can get a mortgage loan that makes sense for your situation — and have the peace of mind of knowing that you have the best loan possible for your home.

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