You want to buy a home in Philadelphia and you’ve pre-qualified for a mortgage. Plus you have a sizable amount of money put aside for a down payment which means you’ll get favorable terms on the loan. But you’re looking around at the mortgage products out there and noticing there are some that have lower down payments with similar terms. The difference in monthly payments isn’t all that different and you’ll still own the home in the long run.
The question here is: do you take the traditional mortgage, or do you take one of the mortgages that has a lower down payment? You’re best off asking the experts at a Philadelphia mortgage company for advice that relates to your personal situation, but here are some things you should take into consideration when deciding what kind of mortgage to take.
Sellers Prefer Conventional Loans
Loan products with lower down payments tend to take longer to close than a conventional mortgage. There’s more underwriting and steps involved in non-conventional mortgages that can hang up the closing on a home. Sellers want to close and move on no matter if the housing market is hot or not. If the seller finds out they have to wait for underwriting and a home inspection for the sale to close, they may prefer to sell to a more qualified buyer.
Less Money Up Front May Mean More Money Later
The more money you put down on your home, the less you pay on the mortgage over time through lower interest rates and mortgage insurance. You’re viewed as being a good risk by the lender which translates into better interest rates and lower mortgage insurance. For example: If you take out a conventional mortgage, you can expect to pay about 0.50 percent on an annual basis for the mortgage insurance if you go monthly. In the event you prefer to pay up front, you’ll pay around 2 percent. If you go with an FHA loan, you’ll pay around 2 percent up front and pay around one percent annually for the life of the mortgage. This can add as much as $20,000 to the total amount of your loan.
Closing Costs are Lower
Closing costs are something that go into every mortgage in one form or another. It’s a fee charged by the lender for drawing up the paperwork and getting your mortgage funded. The seller may opt to help pay closing costs to get the deal done more quickly, or they’ll split them with the buyer. But you can’t rely on the seller to help you out with the costs and you can safely assume that you’ll be paying the costs. Going with a conventional mortgage translates into less paperwork for the lender. The easier you make it for a Philadelphia mortgage company to draw up your mortgage paperwork, the lower the closing costs and more money left for you to spend on your new home.
How Long do you Plan to Stay?
When you buy a home, you need to have a long-term strategy behind the purchase. Many people view buying their first home as a “starter” home that they’ll sell later and trade up to a larger home later. Usually, you want enough equity in the home to make the trading up strategy work. If you think your career is one that has you frequently moving from city to city in the search for better pay, you may want to avoid buying entirely and not risk losing your down payment. But if you see yourself spending a couple of decades in one place, you want to buy in order to give yourself a stable place to live and gain equity. The money you pay towards a mortgage has long-term benefits that you can’t get by renting.
There’s a saying that a home is the largest purchase you’ll ever make in your life, but it doesn’t have to be the most outrageous. A conventional mortgage gives you better terms from start to finish so you can save money throughout the years.