If you are a new home buyer, mortgage rates may seem a bit confusing. You know you want a low rate, and you don’t want a subprime mortgage, but you aren’t really sure what subprime means or how to find a low rate. A good mortgage broker will be able to help you find a good loan for which you qualify, but you should be equipped with some basic knowledge and understanding of the creation of mortgage rates and loans.

3 Basic Types of Mortgage Loans

1. 30-year fixed: A 30-year fixed rate loan is the most common type of loan for a home buyer. The interest rate is fixed, and you can get this type of loan through FHA, VA, and other standard mortgage companies.

2. 15-year fixed: It is amazing how much faster you can pay off your home (and save money) with a 15-year fixed loan. You can get a lower interest rate and pay less over time because of the shortened term length. While this may seem like an easy decision (if you can afford the increase in payments), you must consider other investment opportunities. You could be investing the difference in payment amounts. A financial advisor can help you weigh the benefits of a 30-year versus a 15-year fixed loan.

3. Adjustable-rate loan: Adjustable rate loans take advantage of current interest rates, which can be much lower in the early part of the loan. If a person isn’t planning on living in a home for many years, it may actually save them a lot of money. However, it is risky. Interest rates can shift causing great changes in monthly payments. People who get adjustable-rate loans in order to get a bigger house than they can afford may not be able to keep-up with payments. This is, in part, what caused the last housing crisis.

3 Tips for Successful Mortgage Loans

1. Get a good mortgage broker:

A good mortgage broker can time your closing to get you the best interest rate possible. However, you want to make sure you go to one who you trust and who has the knowledge to get you the best loan. Talk to people about who they have hired, and look at online reviews. An informed decision is always best.

2. Get your budget put together:

You should have a reasonable idea of how much income you have available for a home purchase. This includes how much savings you have for a down payment. Be prepared with this information prior to going to your mortgage broker, so he or she can do their job.

3. Don’t bite off more than you can chew:

You may be able to eek out the payments on a big house for a little while, but don’t bit off more than you can chew. Foreclosures and short sales are a big hit to your credit score and can take away your opportunity for future home ownership for a certain amount of time. Be reasonable. You can always upgrade when finances are better. It isn’t worth the risk to get a loan that you cannot afford.