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Home Buyers will probably be responsible for paying a mortgage for the next 30 years or so. Therefore, you should know exactly what a mortgage is. Understanding mortgages can be difficult for some peopele.
Nevertheless, you don’t need an advanced degree in economics to learn about the financing of your home. A quick summary in mortgage basics will do just fine.
Do you know how much home you can afford to purchase? Find out here!
A mortgage works much like other loans. When you take out a home mortgage loan, you agree to pay back the money you borrowed along with interest over a specific period of time.
In exchange, the lender (typically a bank) will pay the upfront cost of the property. The home or the property is then used as collateral to protect the lender in a situation when the borrower stops making mortgage payments.
A mortgage works much like other loans. When you take out a home mortgage loan, you agree to pay back the money you borrowed along with interest over a specific period of time.
In exchange, the lender (typically a bank) will pay the upfront cost of the property. The home or the property is then used as collateral to protect the lender in a situation when the borrower stops making mortgage payments.
A home mortgage is comprised of three parts—a down payment, monthly payments, and fees.
It is the amount used to pay off the mortgage over the loan’s lifetime and includes a payment on the principal of the loan and interest. Often, property taxes and other fees are also added to the monthly bill.
This includes various costs you have to pay upfront to get the mortgage.
The majority of the loan amount will be paid over a period of time, but there is also an upfront cost that comes with purchasing the property called a down payment. Almost every lender requires this. Typically, the down payment will be about 20 percent of the overall cost of the house.
The other 80 percent can be paid off with the mortgage. The larger your down payment, the better your financing deal will be—lower interest rate, fewer fees, and ability to gain equity in your home quickly..
People come from different financial backgrounds and situations. For this reason, mortgages come in different sizes and shapes to accommodate all the unique needs and circumstances of each borrower.
There are two primary types of mortgages—a conventional home loan, and a mortgage guaranteed by a private lender or banking institution, and a government-backed loan. Within these categories, other less common payment options also exist.
These are the most common types of home mortgages.
A fixed-rate home mortgage allows you to pay the same interest rate – a fixed interest rate – throughout the entire term of the loan.
This is a popular choice among homebuyers as the interest rates are locked in. It gives you the much-required assurance that the rate won’t increase as time goes on.
Fixed-rate home mortgages usually start at a higher interest rate than their counterparts.
An adjustable-rate mortgage is also known as the ARM. As the name suggests, it features an interest rate that can change throughout the length of the loan.
As the interest rate can vary, the monthly mortgage payments will also shift.
While this option is riskier for homebuyers, most ARMs feature caps that prevent the interest rate and monthly payments from fluctuating too dramatically.
On a positive note, this type of mortgage starts at a lower interest rate than others.
Government-backed mortgages are regulated by the U.S. Department of Housing and Urban Development.
These home loans are designed to help homebuyers in need through benefits like lower interest rates and down payments.
Government-backed home loans come in one of the three forms:
Created to help people purchase affordable housing, FHA loans are made by a lending institution, such as a bank. However, the federal government insures home loans.
They offer low down payments and are available to homebuyers with low credit scores. Apparently, this is the least expensive loan that non-veterans can get.
The U.S. Department of Veterans Affairs administers VA home loans to provide loan benefits to the veterans who served in the United States Armed Forces during times of conflict.
To apply for the mortgage, the first step is to obtain a certificate of eligibility. Then, submit this certificate with your most recent discharge or separation release papers to the VA eligibility center.
The USDA home mortgage is aimed at serving homebuyers in rural areas.
Administered and backed by the United States Department of Agriculture, this type of loan is for rural property buyers who are unable to get a home loan from traditional sources or have an adjusted income at or below the low-income threshold for the area.
The interest-only mortgage allows homebuyers to not pay the principal until a specific time. This is often a beneficial option for individuals who are concerned about making monthly payments that include both the principal and interest.
However, there is risk associated with delaying principal because this type of loan pushes people to buy homes they can’t immediately afford. Nonetheless, it is still a popular option for many, especially people who don’t have enough savings to pay the principal upfront.
Buying a home is a huge deal and choosing the right way to finance it is essential. Every homebuyer has distinctive financial circumstances. Similarly, mortgages also come with a lot of variables, maybe more than any other loans. So, it is vital that you learn about the basics of a home mortgage before jumping into it.
Learning some of the basic mortgage terms ahead of time will help you understand precisely what you are signing up for. Nevertheless, if you find everything a little bit too overwhelming, it is recommended that you work with a mortgage expert to grab the best deal on what might be the most significant investments of your lifetime.
Your real estate agent is the best source of information about the local community and real estate topics. Give The Martin Group a call at 561-229-1779 to learn more about local areas, discuss selling a house, or tour available homes for sale.
Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before applying for a mortgage. If you have a low score, you will need time to raise it. Most Lenders use your FICO score. To qualify for the lowest interest rates available, you usually need a FICO score of 760 or higher.
Refinancing your mortgage allows you to pay off your existing mortgage and take out a new mortgage on new terms. You may want to refinance your mortgage to take advantage of lower interest rates, to change your type of mortgage, or for other reasons.
These resources will help you learn more about refinancing your mortgage:
Most mortgage professionals are trustworthy and provide a valuable service, helping you to buy or refinance your home. But dishonest or “predatory” lenders do exist and engage in practices that can put you at risk of losing your home to foreclosure. Learn how to protect yourself from and report predatory lending and loan fraud.
Learn how to file a complaint about mortgages and lenders, and who to send your complaint to.
Learn about the types of scams that predatory lenders use to trick you. The Department of Housing and Urban Development (HUD) has counselors available across the country to help you navigate mortgage professionals, look out for scams, and choose the right loan type for you.
Predatory lenders may try to:
A reverse mortgage is a home loan that you do not have to pay back for as long as you live in your home. You only repay the loan when you die, sell your home, or permanently move away.
Homeowners who are at least 62 years old are eligible. These mortgages allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.
Read more information about reverse mortgages.
Types of reverse mortgages
Be sure to watch for aggressive lending practices, advertisements that refer to the loan as “free money,” or those that fail to disclose fees or terms of the loan. To be a savvy consumer and help protect yourself, remember:
If you suspect fraud or abuse, let the counselor, lender, or loan servicer know. You may also file a complaint:
If you’re a homebuyer, the Department of Housing and Urban Development (HUD) has two programs that may help make the process more affordable.
The Federal Housing Administration (FHA) manages the FHA loans program. This may be a good mortgage choice if you’re a first-time buyer because the requirements are not as strict as other loans.
Determine your down payment, closing costs and credit score before applying:
Many condos do not have FHA approvable. Also, make sure the price of the home is within the loan limit for an FHA home in its location.
The FHA doesn’t lend money to people. It insures mortgage loans from FHA-approved lenders against default. To apply for an FHA-insured loan, you will need to use an FHA-approved lender.
When homeowners default on their FHA loan, HUD takes ownership of the property, because HUD oversees the FHA loan program. These properties are called either HUD homes or HUD real estate owned (REO) property.
Your qualifications to buy a HUD home depend on your credit score, ability to get a mortgage, and the amount of your cash down payment. You can also use an FHA-insured mortgage to buy a HUD home.
Use the HUD Homestore to find listings of HUD real estate owned (REO) properties for sale. Click on the agent tab to find contact information to learn more about the property.
If you have a question or need more information about FHA loans or HUD homes, you can contact the Martin Group or your preferred mortgage broker.
A mortgage is a loan from a commercial bank, mortgage company, or other financial institution to purchase a home or other real estate. A lender will give a loan if you meet certain requirements such as a high enough credit score and income level and have the financial ability to pay it back. The lender can take, or foreclose on, the property you’ve mortgaged if you don’t repay the money borrowed, plus interest.
Getting a mortgage is one of the biggest financial decisions you may make in your life. This overview can help you understand the process.
Before you begin searching for homes, you’ll need to take a look at your income and credit score to figure out if you can afford a home and the monthly mortgage payments. You might want to check out the Mortgage Calculator to see what a monthly payment might be.
You can choose from different loan options depending on the amount of your down payment, your personal preferences, and if you qualify for special loan programs. Get information about the length of the loan (typically 15- or 30-year), interest rate (fixed or adjustable rate) and loan program types (conventional, FHA or VA).
Learn more about the benefits of each loan option.
After doing your homework about loans options, start looking for a potential lender. As you consider different lenders for your mortgage, ask questions about the interest rate for each option. These rates can fluctuate week to week. Learn about the effect of interest rates on your monthly payment.
At this point, you can get a pre-approval or pre-qualification letter from a lender. As a future home buyer, this letter shows you’re a good candidate for getting a mortgage. It’s based on your preliminary documents and credit score and shows how much they’re willing to lend you.
Learn more about the pre-approval process.
When you’ve found a home and made an offer that has been accepted by the seller, it’s time to get loan estimates from multiple lenders. A loan estimate is a three-page document that outlines the loan terms the lender expects to offer you for a mortgage.
You’re now in the closing phase of home buying. You will need to get the home inspected and look for homeowners insurance. After the inspection, your lender will order a home appraisal to make sure the property is worth the amount you’re borrowing. Your lender will also set a date for the closing meeting.
Once the mortgage is approved, you’ll get a loan closing document from the lender, detailing all the final costs. Finally, you’ll go to the closing meeting to sign the last of the paperwork and get the keys to your new home.
Gained from 40+ years as Realtors and Custom Home Builder, we have some tips that will help you.
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