When you first set out to buy a home, it can feel like you’re taking an exam you forgot to study for. You have to make quick decisions that can have ramifications on your finances for years and years to come, and while you'll probably get no shortage of advice from friends and family, it can be a headache to make sense of all the information.
The type of mortgage you pick is one example of a crucial decision you’ll need to make.
In this article, we’ll talk about what it means to get a 30-year mortgage, how it differs from a 15-year mortgage, why you might want to consider paying off your mortgage early, and more.
Read our complete beginner's guide to buying a house here.
30-year mortgage, 15-year mortgage, fixed-rate, adjustable-rate—as you’re in the process of buying a house or researching the home buying process, you’ll hear a lot of terms being used to describe home mortgages. A 30-year mortgage is one example of a common term and mortgage type.
A 30-year mortgage is a loan that will be paid off completely in 30 years if you make every payment as scheduled over a 30-year payback timeline. Each month you’ll pay a mortgage payment that comprises a mix of principal (the amount of money you borrowgoasdfasdfsadfed), interest, and if you escrow, insurance, and taxes. If you opt for a fixed-rate home loan, your total payment amount and interest rate will remain constant throughout the loan. Keep in mind, however, that if escrow for taxes and insurance are taken as part of the payment, it can vary especially considering property taxes tend to increase every year.
Generally, if you put 30- and 15-year mortgages side-by-side, the 30-year mortgage will look like a better deal upfront since your monthly payment will likely be lower. However, smaller payments in the short term can also mean a hefty amount of additional interest paid in the long term.
Let's unpack what a 30-year mortgage means and how it works.
First, the monthly payments will likely be lower than a mortgage with a shorter term, like a 15-year. Second, longer loan terms mean you’ll pay more interest - often much more. Third, when you pay your mortgage payment on a 30-year loan each month, not all of your money will actually go toward paying off the principle of the loan; at first, very little of it is. We’ll discuss each one of those in a little more depth:
For some of the reasons we discussed above, namely, less interest over the length of the loan, 15-year mortgages are growing in popularity—but are they right for you? We’ll compare and contrast the two loan types below.
You’ve probably realized this by now, but there’s not always a clear-cut answer as to what type of mortgage you should choose. A 30-year mortgage might be right for you, but it comes with its own set of pros and cons.
First, let’s discuss the reasons a 30-year mortgage can make smart financial sense:
So what about the downsides of a 30-year mortgage? We’ve already alluded to several, but we’ll summarize them here:
More interest, but lower monthly payments. Slow equity accumulation, but you could get the house you really want. A 30-year mortgage has downsides, but it also has real benefits because it frees up your money in the short term. Also, a 30-year mortgage could end much quicker than planned if you make extra mortgage payments, which we’ll discuss next.
You’ve probably seen bloggers, social media influencers, and financial consultants bringing up the idea of paying off your mortgage ahead of schedule. If you’re in the right financial situation, an early payoff can make sense. A mortgage payment is one of the largest and most regular financial burdens a person will ever commit to in their life. Paying off a mortgage and getting rid of a monthly payment can free you up to use your money in different ways or even become less reliant on a regular paycheck altogether.
That said, if you’re considering trying to pay down your mortgage faster, you should first attend to your savings and other debts. If you don’t already have around 3 to 6 months of income saved up in an emergency fund, you should divert any extra money toward building that up first before putting more money toward your house. Also, if you have any outstanding debts, such as student loans or credit card balances, it’s probably smart to tackle those first, as they may have even heftier interest rates than your home loan.
When you’ve covered those bases and ensured you’re able to contribute enough money to other important buckets such as your children’s education fund and your own retirement, you can consider diverting any extra money toward your mortgage. While you may see a lot of examples of extreme mortgage payoffs, you can add whatever amount of money works for you. Even an extra $100 per month will make a difference in the length of your loan.
One final caveat is that you should always ensure with your lender that there is no penalty for early payoff. The last thing you want to find out is that you have to pay a large fee just when you're about to eliminate your mortgage.
Paying off your mortgage early may sound amazing, but as we mentioned above, it’s not always the best choice. One of the most notable reasons experts cite is that you could, in theory, make better financial decisions with the extra money you'd be putting into your mortgage.
Many financial pros cite investing or contributing to retirement accounts as better uses of extra money due to the potential returns you could get. However, investing goes hand-in-hand with risk, and depending on the health of the market, you could end up losing money with this approach.
Another risky market is real estate. If you pay off the cost of your home before you need to but its value dips below what you paid for it, you could even lose money on your house if you tried to sell it.
Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.
By now, the whole issue of 30-year vs. 15-year mortgages should be much clearer. Both methods have their pros and cons, and you should consider all the facts before you pick the one that’s right for you.
If you value lower payments so you can allocate your money to retirement, debt payoff, or an emergency fund and can handle potentially higher 30-year mortgage rates, a 30-year mortgage may be better for you. If you’re fine with higher monthly payments so you can pay off your mortgage faster and pay less interest overall, a 15-year mortgage may be the right choice.
Speak with a financial professional about both options to decide which method is better in light of your own personal financial situation.
The vast majority of mortgage loans require you to put down a certain percentage of the selling price upfront. However, not everyone can afford to put down that much cash at once. Thankfully, there are many options for home loans that don’t require a down payment.
These loans usually come with strict specifications depending on your eligibility and the property’s location. These loans also often have additional fees or higher rates attached to them. In this article, we’ll cover some of the options available to you as well as the requirements you must meet and whether or not any of them are a good fit for you.
First, let’s be clear about what a down payment is. Let’s say the home you’re looking to buy has a sale price of $250,000 and you’ve qualified for an FHA loan at 3.5% down. This is one of the most accessible and popular loans for first-time homebuyers.
In this instance, your down payment would be 3.5% of the total sale price, which would amount to a down payment of $8,750. This down payment would also come along with additional closing costs that often have to be paid right away as well, further increasing your costs upfront.
If you meet certain qualifications, you could potentially qualify for a mortgage loan with either a low down payment amount or no down payment at all. These no-down-payment options come from government organizations, like the Veterans’ Association or from credit unions that offer limited mortgage loans without a down payment.
If you can’t come up with the thousands of dollars that are needed to finance a home, a zero-down-payment mortgage sounds like a great idea. However, it’s not for everyone.
While financing without a down payment will help you find a home faster without needing to come up with cash right away, you’ll most likely end up paying additional fees or have a higher interest rate on the loan. However, the circumstances will be different if you can qualify for a VA or USDA loan, both of which we’ll cover below.
This means that most, if not all, of the money you would save by not making a down payment will eventually be charged to you over time as part of your mortgage payments. In fact, the total sum of fees and added interest rate over time may end up being greater than the amount you would have paid for a down payment in the first place.
If you need to get into a home quickly and know that you’ll be able to afford slightly higher monthly payments over the term of your loan each month, a zero-down-payment mortgage may be a good option. On the other hand, if you think you might struggle to make larger monthly mortgage payments, it might be a good idea to agree to a down payment instead. You can either save up for an FHA loan or consider other options for low-income mortgage loans.
Here are the most widely-accessible options for mortgage loans that don’t have a down payment. While having no down payment does save you money as a buyer, it’s important to note that each option will come with additional fees and eligibility requirements.
The VA home loan is offered by the U.S. Department of Veterans Affairs. It is accessible to any and all retired or active military members. This home loan offers low interest rates and low to no down payment options.
It also comes with more lenient credit score requirements and mortgage insurance options than other loans. Because the VA loan is government-sponsored just like the FHA loan, it also comes with property livability requirements, and it must be put towards the borrower's primary residence.
While a VA loan can be secured without a down payment, there is a funding fee required at closing, and that fee can cost up to several percentage points of the total cost of the home. The funding fee is typically less than the amount a down payment would be on a house through an FHA loan, but it still requires the buyer to present a few thousand dollars in cash at closing.
The USDA loan is made available by the United States Department of Agriculture. It offers low-interest, zero-down-payment loans for borrowers who are open to living in more rural or undeveloped areas. These areas are pre-determined in every state, and they include both rural land and suburban neighborhoods.
For residents willing to live in predetermined “rural” areas across the United States., USDA home loans are some of the most accessible options, but there are a few specific requirements. The home must be a primary residence. As such, it can’t be a working farm, vacation home, or rental. Also, most lenders offering a USDA loan require that the borrower pay for several months of expenses upfront, including insurance and property tax.
Certain credit unions offer zero-down-payment options, but typically, they require interested borrowers to apply so that the credit unions can ensure that people meet the strict income, debt, and credit score requirements. Credit unions offering these low to no down payment options include Alliance Credit Union and Navy Federal Credit Union, to name a couple of examples.
Many lenders offer loans through the Doctor Loan Program, which applies to early career doctors, dentists, and med school students who are facing large student loan debt or don’t have the funds for a sizable down payment. These loan programs have their own sets of requirements which differ by state, but they are great mortgage options for eligible borrowers in the medical field. Plus, there are no private mortgage insurance fees!
If you want to try to save up for a smaller down payment or you aren’t eligible for some of the options above, there are still many accessible mortgage loans for you to consider! The following alternatives are offered nationwide and they come with low down payment options.
FHA loans typically require 3.5% down, but government regulations require lenders to allow, in certain circumstances, gift funds from friends or family members as part of that down payment.
Using a piggy-back mortgage strategy, a borrower can occasionally take out two separate loans: one for 80% of the mortgage, and the other for up to 15% of the mortgage, which leaves you responsible for a 5% down payment. While this might make it easier for you to come up with cash for a down payment, it can cause an equivalent amount of stress to your bank account over time.
Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.
For those who can’t save up for a down payment on a home, there are certain options available that might lower or completely eliminate the down payment altogether. However, be aware of the additional fees involved, as these can offset the benefit of financing without putting any money down. If you’re able to pay slightly higher monthly payments or pay these fees at closing, a zero-down-payment mortgage may be the best option for you!
Whether you’re a first-time buyer or you’ve purchased a home before, you’ve likely heard of a homeowner’s association. In fact, an in-depth study has shown that 58% of all homeowners live in HOA communities.
A homeowner’s association refers to an organized group within certain neighborhoods and communities, like planned unit developments, subdivisions, or condominiums. HOAs are made up of a board of directors that local homeowners elect to maintain a framework of regulations and rules in a community. Let’s compare the pros and cons of a homeowner’s association!
An HOA comes with many benefits, as well as a few drawbacks. Let’s take a closer look at the pros and cons of an HOA. We hope this makes it easier for you to decide whether you want to purchase a property that is part of a homeowner’s association or not.
A well-run homeowner’s association will offer several perks. In fact, according to in-depth research, being a member of an HOA can boost the value of your property by 4.2%, which is incredible. This increase in property value is the direct result of the amenities and enhanced aesthetic of an HOA, both of which often create greater appeal when selling your home.
An HOA also creates excellent curb appeal by providing well-maintained community spaces. All of these features can help you market your property for sale because they enhance your home’s attractiveness. In addition, potential buyers can enjoy the financial benefits that an HOA can offer them if they purchased a home within an HOA.
Another great benefit of HOAs is that these organizations can set community rules and regulations. While these rules are often thought to be a con rather than a pro of an HOA, these regulations can actually benefit residents very well.
For instance, people living in popular tourist destinations can enjoy quiet hours as set forth by the HOA. In the same fashion, rules and regulations about speed limits and parking can make your neighborhood safer and easier to navigate. Rules aren’t always a bad thing, especially when it comes to rules formed by a homeowner’s association.
At the same time, HOAs present several downsides to property owners. For instance, some residents may find it inconvenient and costly to have to pay HOA dues every month or quarter.
In addition, an investor purchasing an HOA property that they plan to rent out for additional income may experience lower cash flow than if they purchased a non-HOA property because there aren’t any fees associated with non-HOA homes. In the event that people decide to shift the cost on to their potential tenants by charging their tenants more money to cover the HOA fees, they could end up risking their ability to market the property in the future.
All in all, first-time homebuyers seeking a property within an HOA community may find HOA fees cause their monthly costs to be higher than they are comfortable with. Sometimes, HOA fees can cause costs to exceed people’s budgets.
Some HOAs charge a lot of fees, but what are you paying for? Read our blog all about HOA fees here!
Once you purchase a home that’s part of a community association, you need to follow all its rules and regulations. These rules primarily focus on protecting your investment, as well as providing neighbors a common framework. Let’s explore some of the most common HOA rules!
The HOA is responsible for ensuring that a community is appealing and looks beautiful. As a result, most HOAs require that individuals maintain a certain level of curb appeal. HOA maintenance requirements typically include walkways, driveways, lawns, facade, and other visible or public areas.
A common homeowner’s association rule that you need to keep in mind is the policy on rentals. The fact is that not every HOA allows you to rent out your property. Thus, you must verify all the rules regarding rentals to avoid fines.
Additionally, individuals living in an HOA community are expected to pay a monthly or quarterly fee. These fees are put towards amenities and other items that improve the community as a whole.
Some HOAs also implement restrictions on noise pollution. Apart from limiting the time you’re allowed to use power tools and host parties, a lot of HOAs also have set hours where you can’t make a lot of noise. These are known as quiet hours.
Most HOAs have rules regarding pets, including the number of animals you can have, the type of breed, pet-related clean-up rules, whether you can walk your pet or not, noise levels, and leash laws.
HOAs mainly focus on ensuring a family-friendly and happy environment. This means that the focus of their rules and regulations are the overall safety and wellness of everyone who lives in the HOA.
HOA strives to improve the aesthetic and overall appeal of the neighborhood. So, apart from maintenance rules, they also limit the clutter you can put on display. Your HOA will also require you to abide by rules regarding what you can dispose of in the community's garbage and recycle bins.
Before you purchase a home with an HOA, you must learn about the different ways that HOA dues can affect your finances. So, let’s discuss the top 3 ways HOA dues impact your finances!
With time, it’s possible that your HOA dues will either decrease or increase. In the event that they increase rapidly, you may have trouble paying your home loan if you’re not prepared for this possibility.
HOA fees often increase if and when a certain HOA project requires funding. Fees may increase as a result of inflation as well. To avoid being subjected to sudden increases, read about the HOA’s history in your desired area and inquire about any upcoming projects.
Here’s the thing. Your HOA dues cover planned and routine costs only. So, if there are any large projects on the horizon or emergency repairs that require immediate funding, you may have to pay for the additional special assessment as part of your next round of HOA fees. The total cost of these assessments can vary from hundreds to thousands of dollars.
Purchasing a home in an HOA community means you’re agreeing to pay regular HOA dues. If you don’t pay them, you’ll start to fall behind on your financial responsibilities and jeopardize your ability to still be part of the HOA.
An HOA can take out a lien on your property if you don’t pay your HOA fees, which can lead to foreclosure in some instances. Worst of all, collection accounts and public records can appear on your credit reports, too. All of these possible scenarios can make it harder for you to qualify for other loans to purchase another house in the future.
Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.
Depending on your interests and preferences, there are some regulations that you may find overly restrictive while other rules might not seem strict enough for you. So, taking a look at the rules and regulations of the HOA that the home you want to buy is part of will help you decide if that’s where you want to live after all.
People buy their homes for a number of reasons. Affordability, stability, and comfort are some of the most important factors. However, appreciation must also be considered when you’re thinking about buying, selling, or refinancing a home.
Understanding home appreciation is essential for homeowners. Knowing how home appreciation rates work and what they are in your neighborhood can help you to make the best choices for your financial security.
In real estate, appreciation refers to the increase in value of a piece of property over time. An increase in appreciation for a home can stem from several factors. Some of these factors have nothing to do with the home itself, but instead, they relate to the area around the home.
For example, increased job opportunities and growth in an area can help to increase average home appreciation in an area. When a new factory is opened nearby, there may be increased demand for homes in the area so that workers can enjoy a quick commute. This increased demand can lead to higher sale prices for the neighborhood, even if the homeowners haven’t changed anything about the homes that they’re selling.
However, homeowners can also affect their home’s appreciation. The best way of doing this is by investing in your home and making improvements.
Average home appreciation rates are the rates at which homes increase in value for a given period of time. These rates will vary over time, but typically, they do not shoot up drastically. The rate of appreciation depends largely on location.
This is because the land on which your home sits is the one thing that cannot be changed about your home. When there is increased demand for homes in your local area, average home appreciation rates go up.
There is one factor in particular that can affect appreciation rates in locations across the United States: the economy. In a strong economy with greater spending, house prices tend to go up. However, the state of the economy is not the only influencer. Inflation can have the ability to increase and decrease the value of homes, as well.
Because inflation can affect the loans that potential home buyers may qualify for, they can also change the size of the pool of potential buyers, which can affect the balance of supply and demand in the market.
In the United States, the average appreciation rate for a home is between 3 - 5%. In the last 25 years, the average appreciation rate for a home in the United States was 3.9%.
There is a limited supply of land in any given area. The land that your home sits on becomes more valuable over time, as there are fewer building sites available. This is especially true when the land around you has been developed into restaurants, retail spaces, suburban tracts, and more. In areas that become more desirable over time, average home appreciation goes up.
Home appreciation rates inform homeowners about what they can expect to sell their homes for at any given time. Higher appreciation rates mean that a homeowner can expect to sell their home for more than what they bought it for. Lower appreciation rates lead to properties that decrease in value.
A positive appreciation rate is something all homeowners should strive for. When you’re able to sell your home for more than its original purchase price, it can make it possible for you to upgrade to a larger home, pad your savings account, or help you to pay off debts with the excess.
Appreciation is best understood as a percentage.
If you would rather avoid calculations, the U.S. Federal Housing Finance Agency has a House Price Calculator that can assist you in determining your home appreciation value.
Because you can’t control the local market around you, for homeowners, the only way to keep home appreciation rates high is to maintain your home and keep it up to date.
To enjoy a high appreciation value, homeowners can do projects such as these:
Maintaining your home’s exterior keeps it looking fresh and clean. It may seem simple, but even just a fresh coat of paint can help to enhance your curb appeal and protect your investment.
When they’re looking for a home, buyers usually want something that is updated to modern standards. Keeping the interior of your home clean, operational, and up-to-date can add thousands of dollars in value when it’s time to sell.
Energy efficiency is another valuable factor home buyers look for. Increasing your home’s efficiency can lower your gas and electric bills. Homebuyers are often willing to pay more for energy-efficient homes, as they understand that they’ll pay less in monthly utilities with an upgraded home.
Smart homes make life easier, which has made them popular among buyers. Adding more advanced technology like newer thermostats and security systems can add value to your home.
Square footage is one of the biggest selling points for a home. Adding square footage is not the easiest way to add value to a home, but adding structures like a deck or a guest house will almost always add thousands of dollars in value to your home.
You cannot always control what goes on around your home, but keeping your home up-to-date, looking good, and functioning properly will add value and increase appreciation.
Our Mortgage Learning Center features blogs on a wide range of mortgage and refinancing topics.
So what is home appreciation? It’s the increased property value of your home over time. Because the trend for homes in the United States is currently about 3-5% in appreciation, this means that most homeowners will see their home’s value increase in the long run. However, to maximize home appreciation, homeowners need to do their part.
For more information about home appreciation for your specific property, contact one of our agents today! We can help you to understand the current value of your home and the ways that you can increase that value.
*Does not apply to third party fees and closing costs.
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