(BPT) - It's probably an understatement to say that buying a home can feel overwhelming, especially in the current housing environment. From the different types of loans and lenders to the hidden fees that drive up costs, it's easy to feel lost, confused and unsure if you're making the right decisions for you and your household. In fact, a recent study from the JPMorgan Chase Institute shows that a lack of understanding the mortgage process could lead to unfavorable terms in the long run and a higher risk of costs.
But, whether you're a first-time homebuyer or in the market for a new home, all hope is not lost. Understanding your mortgage options and the process can not only save you money in the long run, but can help you feel more confident in making the best choice for your specific housing needs.
To master your mortgage and buy your dream home, it can be helpful to start with familiarizing yourself with different types of mortgages, comparing rates, and understanding additional ways to save.
1. Get to know the different mortgage types
One of the main, and often most confusing, decisions you'll have to make is choosing a mortgage loan type. And just like anything that's personalized, there is something for everyone. The following explanation focuses on debunking fixed-rate versus adjustable-rate mortgages, but if you're interested in learning more about conventional versus FHA loans, check out this article or connect with a Home Lending Advisor.
- A fixed-rate mortgage is a loan where the interest remains the same over the life of the loan. So, what this means is your rate will never increase … but it also won't decrease if the Federal Reserve lowers interest rates. Typically, this loan is recommended if you plan to be in your home for longer than 10+ years. The plus side of a fixed-rate mortgage is that it's easier to budget if you always know what your interest rates and payments will look like.
- An adjustable rate mortgage, or ARM, is a loan where the interest rate is fixed for a specific amount of time, then adjusts periodically. Essentially, your monthly payments will fluctuate based on what the market is doing, so some months your payment might be higher or lower depending on market rates. This is usually a great option for those who don't plan on living in their house for very long, because typically ARM interest rates start lower than the fixed-rate offerings and then adjust higher or lower over time.
2. Compare your rates
Now that you understand the differences between fixed-rate mortgages and ARMs, it's time to engage in America's greatest pastime: shopping around. No matter what loan type you choose, it's important to compare rates from different types of lenders and select one with terms you're most comfortable with.
You can find current rates, along with a helpful calculator to figure out what exactly you can afford, at Chase.com/MortgageTools. The mortgage calculator is an easy way to determine what your monthly payments would be and if that aligns with your budget. It also provides the most up-to-date rates in the area where you're house hunting.
Once you find a rate that feels good to you, it's a good idea to lock it in if your lender provides that option. For instance, the Chase Homebuyer Advantage program gives buyers the option to lock in their mortgage rate for 90 days with no upfront fees. This gives you peace of mind if you're worried about rates increasing as you shop around in, say, a very turbulent housing market.
3. Uncovering more ways to save
While most people look at mortgage types and rates as ways to save (which you absolutely should do), many leave money on the table by not exploring homebuyer grants and down payment assistance programs that can save them thousands on homes.
For example, Chase offers a homebuyer grant of up to $7,500 when purchasing homes in more than 15,000 eligible areas across the country. You can use it to save in a variety of ways, such as lowering your interest rate, reducing closing costs or putting it toward your down payment. Check your eligibility for a grant with the Chase Homebuyer Assistance Finder.
Chase also offers a Closing Guarantee, which promises an on-time closing for eligible mortgages in as soon as three weeks or the customer may receive up to $20,000. Essentially, the closing guarantee can help you close quickly, which is helpful in a competitive market.
The homebuying process can feel like a lot, but by understanding the mortgage types, comparing your rates and using grants and incentives to save, you can navigate the process with confidence and make the best decision on your road to home.
