What to Know: Comparing Loan Types

The options you discuss with you loan officer are not firm offers. Your loan officer will help you compare the pros and cons of different loan choices using worksheets or printouts that show a particular loan option. These worksheets are very useful for thinking through your choices in advance, before you have found a home, but they are not a firm offer. 

A Loan Estimate is a standardized form that lets you compare costs across different lenders. It's a good idea to know what kind of loan you want before you request Loan Estimates. 

How long you plan to keep the loan matters. When comparing two potential loan choices, it's a good idea to consider the shortest and the longest amount of time you can see yourself keeping the loan. For example, whether you should pay closing costs upfront or use a CFCU No Closing Cost loan to reduce your closing costs depends on your timeframe. An adjustable-rate mortgage may start with a lower monthly payment, but can be risky if you keep the loan after the initial interest rate expires. Figure out what is the shortest, most likely, and the longest number of years you expect to keep the loan, and ask your loan officer to help you calculate the total costs of a loan over each of your three timeframes.  

Think beyond the monthly payment. It's important to make sure that you can afford the monthly payment for the loan amount and the kind of loan that you are considering, but it's also important to consider the amount of risk you are taking on (for example, with an adjustable-rate mortgage your interest rate and monthly payment may go up later) and the overall cost of the loan. Some types of loans may have a lower monthly payment, but a higher cost overall. Ask yourself which matters more to you.