You want to find the perfect house, but first you should look for the right mortgage. The right amount of prep work can make your home buying process a success. You have many loan options to choose from including fixed and adjustable rate loans.
With a fixed rate mortgage, your monthly principal and interest payments remain the same throughout the life of the loan. Most common fixed rate terms range from 10 to 30 years. If you plan on staying in your home for several years, you may find that a fixed rate mortgage is right for you.
Adjustable rate mortgages (ARMs) generally have monthly principal and interest payments that change after a set period of time, based on an external financial index. ARMs may offer a variety of features, such as lower rates, caps on interest, and conversion options. If you plan on relocating or trading up in a few years, you may want to take advantage of an adjustable rate mortgage.
Knowing how much you can afford ahead of time will help you focus on your search for the perfect house. Unlike prequalifying, which is only an estimate of how much a bank will lend you based on information you have provided, a pre‐approval is based on a review of your credit, employment history, assets, and liabilities. This will help you determine in what price range you should look and help ensure you don't lose the home of your dreams because you weren't able to secure a loan. In some cases, a pre-approval can even make you more attractive to the seller if there are multiple bids on the same house.