Skip to Content

Choosing the Right Mortgage: 7 Things to Consider

Key Learnings

In this article, you'll learn the seven most important steps to deciding which mortgage type is right for you.

Paddio makes homebuying delightfully smooth. Friendly expertise. No pressure. Over $500 million funded.

Given the many different types of mortgages available, your question might be, "Which mortgage loan is right for me?" It’s going to be different for everyone and will depend on your unique financial situation. The good news is that the information below can help narrow down your options, so let’s get started.

Choosing the Right Home Loan

With so many mortgage options to choose from, it can be difficult to narrow down the options. But read on for information on how to choose the right mortgage for you and your unique financial circumstances.

1. Understand Your Credit Score

Knowing your credit score and how it impacts your home financing can help you decide which loan options may be feasible for you. A higher credit score typically means more favorable terms, so the higher the better.

Lenders use your credit score, along with other things such as your debt-to-income ratio, to determine how likely you are to repay the loan. Many lenders will set their credit score benchmark to be around 620, but some may look for even higher.

You don’t need anything near perfect credit to qualify for most loan types. Minimum credit score guidelines will vary depending on the lender, the loan type and other factors.

2. Know How Much You Can Comfortably Afford

It’s also crucial to understand how much a home you can afford. Lenders will make sure they’re not financing a home that is out of your means, but having a good idea of how much you can comfortably fit into your budget will make the homebuying process much smoother.

Spend time with mortgage and affordability calculators to get a solid handle on your buying power and a budget that’s comfortable.

3. Understand How Interest Rates Work

Mortgage interest rates come in two forms: fixed and adjustable. Fixed interest rates are just what they sound like – a rate that remains the same over the course of the loan. Adjustable mortgage rates (ARM) on the other hand are going to vary over the life of the loan. ARM rates “go with the flow” of the market over the life of the loan. There are pros and cons to both fixed and adjustable-rate mortgages, so speak with a loan specialist at Paddio to determine which rate makes the most sense for you.

Your mortgage rate will also affect your monthly mortgage payment, so the higher the rate, the more you’ll need to pay each month.

4. Consider How Long You’ll Live There

It’s not uncommon for people to move homes or even cities multiple times in their life. When purchasing a home, be sure to take a realistic view at how long you plan to spend there as it can impact some of the financial decisions you should consider.

For example, if you plan to stay in this home for a very long time, choosing an Adjustable Rate Mortgage (ARM) can be risky.

5. Decide on a Down Payment

Down payments can suck up a lot of your cash reserves, but luckily there are options.

Certain types of mortgages require higher down payments, while others won’t require one at all. It’s important to know how much you need to put down before making a decision. Having a realistic idea of how much down payment you can afford can save a lot of heartache down the road.

While conventional loans typically require a down payment of 3% to 20%, both VA loans and USDA loans are $0 down programs.

6. Consider Extra Costs and Fees

All loans come with closing costs that include things like property taxes, title insurance, recording fees and more. You can expect closing costs to be between 3% and 5% of the total loan amount.

Costs and fees can vary by lender. You can ask a seller to cover these costs or pay them out of pocket.

7. Compare Estimates from Lenders

Choosing the right mortgage loan also means choosing the right lender. Each lender can charge different fees, offer different interest rates or provide more favorable terms. When conducting your research, it’s important to determine the lender that works best for you and your financial background.

Making the Best Choice For Your Needs

If you are asking yourself "what type of mortgage loan is best for me?" remember that each buyer’s situation is unique. What works for others may not work for you or your finances. Ask questions, compare offers, and get educated on what each loan offers. Doing so can help you find the best mortgage for your situation.

For assistance in comparing different loans, contact the experts at Paddio for help.

Written by:
Tyler Oswald
Loan Officer Development NMLS #2071128

Tyler brings her expertise of FHA, Conventional and USDA home loans to the team rounded out by a bachelor’s degree in marketing with an emphasis on professional sales.

More articles by Tyler Oswald
Tyler Oswald headshot

Paddio's Learning Center

Essential reads to get you home with confidence

Visit Learning Center