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How To Revamp Your Mortgage

You're about to buy your first house, but the price tag's intimidating. Make that number less scary by finding the best monthly plan for you.

Unlike the excitement of checking out open houses, shopping for a mortgage is enough to make your eyes glaze over—and rightfully so. But choosing the right loan is key to whether or not you can afford your dream house, not to mention what that four-bedroom, two-and-a-half-bath will cost you in the long run. We did the legwork to find out how much a $350,000 house breaks down to each month with different mortgages. So which one’s right for you?

30-year fixed mortgage

After: $1,342.05 per month.

Why you’d want it: You’re not exactly Mr. and Mrs. Risk Taker, and the thought of having your payments increase over time is already making you sweat. With a fixed mortgage, you’re locked in to an interest rate, so you’ll be writing the same check again and again until 2040.

What you’ll need: To score a conventional mortgage right now, lenders expect a hefty 20% down payment of $70,000 unless you are able to buy mortgage insurance (which has become almost impossible in this economy). Credit is still tight, so you’ll need a score of 720.

FHA 30-year mortgage

After: $1,813.12 per month.

Why you’d want it: Freaking out about the down payment? Well, relax—this loan is just like a conventional mortgage, but is funded by the Federal Housing Administration instead of through a bank. Translation: You won’t be required to put down a ton of dough up front since the government will have your back.

What you’ll need: Be prepared to make a 3.5% down payment of $12,250. If you don’t have that much cash in your savings, fear not—it’s allowed to be gifted. (Hello, Mom and Dad!) Boost your credit score to 620 to seal the deal.

USDA 30-year mortgage

After: $1,898.32 per month. This includes the required 2% guarantee fee the U.S. Department of Agriculture tacks on instead of requiring mortgage insurance.

Why you’d want it: Your savings is, well, practically nonexistent, but you have steady paychecks rolling in and you want a house outside of a major metropolitan area.

What you’ll need: A credit score above 620, plus you need to have been employed for the past two years. Remember: It applies to rural areas only (sorry, city folk!).

15-year fixed mortgage

After: $2,214.22 per month.

Why you’d want it: Paying an extra $800 a month will end up saving you about $80,000 in interest fees in the end. (No, that’s not a typo.) If you plan on staying put for the next 10 years and can comfortably swing the pricier monthly payments, you’ll boost your total net worth quickly by building equity in your home.

What you’ll need: This is a conventional mortgage, so you’ll need a down payment of about $70,000 (ouch). And, since the payments are steep, your lender will want to make sure you’re bringing in at least six figures and have flawless credit—think upwards of a 720 credit score.

5-year adjustable-rate mortgage

After: $1,418.72 per month (calculated with 4.5% interest). After five years, your payment will rise (probably about .25% of your total mortgage) but until then you’ll be able to get a lower interest rate than you would with, say, a 15- or 30-year fixed.

Why you’d want it: You aren’t planning on staying in your house for long and are also willing to take a bit of a risk if it means you can get a great deal right now.

What you’ll need: Plan on handing over $70,000 (there’s that number again) for the down payment and make sure your credit rating is 720.

Note: Payments are based on a $350,000 home and calculated with 5% interest (unless otherwise stated) before taxes, insurance and closing costs, since these vary widely from state to state.

Nestpert: Jim Pair, President of the National Association of Mortgage Brokers and Marc Davit of The Mortgage Center

-- The Nest Editors

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