The following is a guest post.
When you are in the home buying process, there is a lot to think about. The process might be overwhelming for you, and it most likely will be. There will be so many pieces of paper that you will have to fill out, and in the end you're signature will look completely different from the very beginning. Or at least that's what happened to us! It felt like we signed over 100 pieces of paper.
How much should I put down?
This is a BIG question when buying a house. How much you put down will affect what time of loan you are approved for (FHA, conventional), what your interest rate will be, and also whether you will have Private Mortgage Insurance (“PMI”).
We currently have PMI on our house because we had an FHA loan and only put down just above the minimum (which I believe is 3.5%). We weren't thinking when we did this, and now we pay an extra $50 per month in PMI, when we could have just put a larger down payment on the house. We did get a decent interest rate for the time when we got our loan. Different banks offered slightly different amounts, but for the most part it was pretty similar.
Should I buy mortgage protection insurance?
When buying a house, you are most likely going to be asked if you want the extra mortgage protection insurance. Some might quickly shoot this down, but it should be thought about at least a little bit. If you want that extra comfort to know that you're covered just in case something happens to you or your family, then insurance for your mortgage might be important for you.
Should I get a 15 or 30 year mortgage loan?
You'll notice when shopping around for a home loan that usually a 15 year mortgage will have a lower interest rate than a 30 year mortgage. However, you should evaluate how much that difference is worth it to you. What value does it have? Is it worth it to cut your mortgage in half and have the higher payments? Or should you just sign up for the 30 year loan and make extra payments? You can of course still pay off a 30 year loan in 15 years.
There are many positives for having either a 15 year or 30 year mortgage. Interest rates are pretty low with whatever decision that you make. You might be able to save more money than with a 30 year mortgage though, as the interest rate is usually 1% or more lower for a 15 year mortgage loan. However, with that shorter-term mortgage, you of course would have higher payments. Higher payments might be a problem one day if you ever have a problem paying your monthly payment.
A 30 year mortgage will have lower payments, and you can always pay extra on it if you would like. It's all personal preference and what you're comfortable with!
Did you put a large enough down payment on your house? Do you have PMI?
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