Buying a home is one of the most – if not the most – expensive purchases of your life. Being able to pay for a new home upfront is something that many people dream of doing. If you can pay off the amount of a house without assistance, then that’s great for you, but you probably wouldn’t be reading this article if you could.
One way to secure the purchase of your new home without having the exact amount of cash is with a 30-year fixed-rate mortgage. A fixed-rate mortgage is a type of long-term loan. The fixed loan rate means that the interest rate that you sign on for when taking out your loan will stay the same throughout the 30-year term. With a fixed interest rate, you can prepare your budget for the monthly payments on your mortgage. You don’t necessarily have to be a first-time homebuyer or even buying a home, in general, to seek out a 30-year mortgage. You can also use the loan to refinance your previous mortgage.
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What Can a 30-Year Fixed-Rate Mortgage Do for Me?
Aim for the Home of Your Dreams
As stated above, you can buy a better house with a longer-term loan than when taking out a shorter-term loan. Thanks to the long-term loan and the fixed interest rate, you can afford a home that may have been out of your reach when compared to a shorter-term loan. The average mortgage rate for a 30-year loan term is around 3.97%. Typically a 15-year mortgage has a rate of 3.53%. That difference means that you pay a higher interest rate on the 30-year mortgage terms. However, your monthly payments will be less, as you have longer to pay your mortgage. The lower price can allow you to choose a better home if you wish.
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A Home for Everyone
You may not have the finances to aim for a bigger home, but a 30-year fixed mortgage can help you afford a form of housing that you couldn’t manage otherwise. The lower payments that come with a 30-year fixed mortgage can provide access to housing for a much wider audience. Your new home doesn’t have to be the home of your dreams, but you can take your first step onto the property ladder.
Better for Planning
A fixed-rate loan is always more preferable to an adjustable-rate loan, and this is even more true for a mortgage. You may get lucky and see your loan rate adjustment drop in your favor, but do you want to risk it? With a fixed mortgage rate loan, you know how much you will pay back each month and can plan your housing expenses accordingly. Predictable payments are due to a fixed-rate loan being fully amortizing. A fully amortizing loan means that each monthly payment is the same amount until the loan is paid off in the agreed period. The fixed mortgage rate will stay the same, but you may see a change in the amount owed if your homeowner’s insurance and property tax increase or decrease.
Why Not Take Out a 30-Year Fixed-Rate Mortgage?
The Biggest Advantage Is Its Disadvantage
The long term of the loan allows you to make more affordable payments. However, longer terms also mean that you will pay a higher interest rate. The mortgage lender is taking a more significant risk with you taking longer to pay back your loan. For this reason, they set a higher interest rate to cover their possible losses.
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Flying Too Close to the Sun
When you sit down with a mortgage adviser, you will see the monthly lower payments and think that you will have no problem paying them back. You then decide to take out a higher mortgage amount because of the low payments. Aiming too high can be a grave mistake. A long-term mortgage can help give you access to bigger and better homes, but you should still work within a budget. Don’t commit to terms that you can’t fulfill. You may find yourself in debt with your house being used to cover that debt – risking the possibility of losing your home altogether.
It Takes Longer to Build Up Equity
The equity of a house is the market value against the mortgage of the property. With a long-term mortgage, you will be paying less towards the actual value of your new home. More money will go towards the interest of your monthly payments. Less money on the principal amount of the property means that it can take longer to build up equity when compared to a shorter-term loan.
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Where Should I Go for a 30-Year Fixed-Rate Mortgage?
There are multiple mortgage products available to a consumer. If you have considered the above and have decided that the 30-year mortgage term and the higher mortgage rate is best for you, then you will need to know where to look.
Below are some of your best options for finding the right loan to help you afford your dream home. If you find a lender with agreeable rates, then you can ask them to rate lock for you. Rate locking is the process of freezing your interest rate. You are not committed to that lender. Rate lock gives you time to shop around without having to worry about the interest rates changing. All mortgage interest rates shown are from the time of writing and subject to your creditworthiness as well as the shifting nature of interest rates.
Quicken Loans – For Those Who Want to Do Everything Online
Quicken Loans offer five different mortgage products to their customers. They do not directly provide a service for you to refinance your mortgage. Although, you can apply through their subsidiary Rocket Mortgage. The standard 30-year fixed conforming loan mortgage rate currently stands at an interest rate of 3.99% with 4.279% serving as the annual percentage rate, or APR. To be eligible for a mortgage loan from Quicken, you will need a credit score of 620. Your debt-to-income ratio will also be taken into consideration when you apply for the loan.
Right now, Quicken sounds like a reasonably average lender. However, they may only request 3% as a down payment, which opens up more options to homebuyers. Some may consider it a bonus that the whole application process is online. There is an option to speak to a home loan expert over the phone if you prefer. Unfortunately, Quicken has no physical branches for you to visit. Quicken also offers FHA-backed and VA loans. You should bear in mind that lenders who accept a down payment that is less than 20% usually require you to take out a private mortgage insurance (PMI). PMI can be between 0.5% and 1% of your loan amount.
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Citibank Mortgage – For Those Who Want to Do Everything Face-to-Face
The interest rates for Citibank start above the average at 4.125% interest and 4.321% APR. To make up for this, they do not check your credit score as other lenders would. Instead, they check your creditworthiness by assessing your rent payment history and other payments that you have made to ensure that you are a trustworthy borrower. The lack of requirement for a credit score is combined with a down payment requirement starting at 3%.
Unfortunately, Citibank lacks the online application, meaning that you have to go to the physical bank to request a mortgage. They do knock off $500 of the closing costs for your mortgage, with further discounts offered to existing customers, which is a nice bonus. Closing costs may include the origination fee of the loan. The origination fee is the fee charged for putting through a mortgage application.
Chase – For Those Who Want Access to a Wide Variety of Financial Products
Chase offers a large variety of financial products including credit cards, checking accounts, savings accounts, auto loans, and of course, a wide selection of both conventional loans and non-conventional mortgage products including VA loans. They also offer options for refinancing your mortgage if that is what you need. The variety of products is because they are one of the “big four” banks of America. (Citibank is also part of the four.) Expect a mortgage rate of interest around 4.607% for a 30-year fixed-term mortgage. You will need a credit score of at least 620. Chase is prepared to accept a down payment as low as 3%.
Chase does allow you to do everything online. Alternatively, you can visit one of their branches and speak to someone in person. They also offer a variety of financial assistance guides. There is a handy checklist to help you with the home buying process. Additionally, there is a guide to help you understand your escrow account statement. They do charge for you to perform a rate lock, which is one downside.
New American Funding – For Those Who Have a Low Credit Score
Having a low credit score is not a bad thing. Of course, a poor score can come from not paying debts and holding a high debt-to-income ratio. Alternatively, you may just have not had the chance to work on your score. New American Funding understands this dynamic, so they, like Citibank, will use other means to determine your creditworthiness. If you take out a 30-year fixed-rate home loan with them, then the average mortgage rate of interest that they are offering is a low 3.375% with the APR at 3.507%. They do accept a 3% down payment but also provide mortgage down payment assistance to those who need it. Applying online is an available option for all of the above.
Bank of America – For Those Who Are First-Time Buyers
Bigger isn’t always better; however, that may not be the case for fixed-rate mortgages. Bank of America is another of the big four U.S. banks that make this list. (The remaining bank, which did not make this list, is Wells Fargo.) You will need a down payment of 5% or more to use a mortgage from Bank of America. The minimum required credit score is again 620. Although, access to their best interest rates requires a score of 740 or higher. The average mortgage rate of interest offered is around 4.336%. However, with a higher score and a large down payment, you can get it down to 3.500%.
The standout feature of Bank of America is their program for first-time buyers. They provide a wealth of information to help a first-time buyer with the mortgage process. Help is available from start to finish. They assist with calculating the initial monthly mortgage rate payments. Additionally, they help with the closing of the mortgage – and everything in between. Besides the assistance for first-time buyers, it is also possible to use Bank of America for refinancing solutions. The application can be made online, in a branch, or over the phone.
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Making a House a Home
Being able to afford a home is no easy feat. Before you can even think about a mortgage, you need to save up for a down payment. A better loan-to-value ratio, or LTV, will make your loan easier to pay off. Therefore, the more you can put provide for a down payment the better. Some banks even have a loan limit and won’t offer a mortgage unless your LTV ratio meets a certain percentage. Take into consideration origination fees, underwriter fees, a mortgage insurance premium if they require you to take out mortgage insurance, and many more closing costs. All of this adds on to the final amount that you pay for your property.
Hopefully, the above list will point you in the direction of some potential lenders that can help you purchase property, whether you are a first-time homeowner or an experienced buyer. The big banks have a proven track record of providing financial services; otherwise, they wouldn’t be the big banks. However, you can find just as good a deal – if not better – with a smaller online-only lender. New American Funding offers some of the lowest interest rates but is nowhere near as big as Bank of America.
Do you own a home that you couldn’t have afforded without a 30-year fixed-rate mortgage? Will you be taking out a mortgage with one of these recommend lenders?
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