What is a Mortgage?
To a first time home buyer, the world of mortgages is intimidating, confusing, and downright overwhelming. In fact, even experienced home buyers dread the word “mortgage.” Borrowing thousands of dollars and committing to pay for the long haul is a naturally overwhelming step, but with a little research, anyone can become more comfortable and prepared for their first mortgage. Pro tip: A good credit score will help lower your monthly payments and/or your interest rate. See how you can improve your credit score before applying for your mortgage.
What is a mortgage?
A mortgage is a loan that will enable the buyer to pay for a home. Most mortgages cover 80% of the cost of the home. The loan can be paid back in 15- 30 years. There are a surprising number of mortgage types out there, so shopping for a mortgage lender is an important first step in the home buying process. Getting “pre-approval” for a mortgage will show you what amount of money you can comfortably afford to borrow and repay. This will help you narrow your home search to properties within your budget.
Where can I get a mortgage?
Mortgages can be obtained from several different sources. Banks and Credit Unions and easy places to start if you already have a bank with which you work comfortably. This will give you some interest rates to compare and will provide an idea of a typical monthly payment in your price range.
Nonbank lenders such as Quicken Loans are also places to check for your home loans as well. They are often willing to work with borrowers that may have a less than perfect financial history and maybe a great place for a first-time borrower.
Mortgage brokers are financial experts who can help you find loans quickly because they work with many various lenders and basically do the “shopping around” for you. Once you have found a lender, you will be expected to put down a downpayment to show that you are committed to this investment. Many lenders require 20% of the purchase price to be paid upfront, but you can find others that will require less than that if you shop around. After your down payment, the rest of the money that you borrow is called the principal, and the extra money that you are charged for the privilege of borrowing is called the interest. (The interest rate is calculated as a percentage of the amount that you borrow.) Interest can be called a fixed interest rate which remains the same for the life or the loan or an adjustable interest rate which starts lower and then adjust upward during the life of the loan to reflect the current lending rates. Adjustable interest rates can be risky because your loan payment can increase to a point that may not keep you within your budget.
Once you are armed with some knowledge about what mortgages are, what type of lenders are available, and what amount of money you can be pre-approved to borrow, you are well on your way to buying your first home! Your realtor can also be very helpful in pointing you to a great loan advisor and in suggesting lending options with which you may not be familiar. Realtors are excellent coaches in the homebuying process, so be sure to take advantage of their experience and expertise as you embark on the adventure of a lifetime!
Happy Home Buying!