What Should You Know About Mortgages?
"Mortgages” or a “mortgage loans,” are funds for property owners and purchasers of property to buy pieces of real estate such as homes, businesses, or investments. Few individuals have bulk savings or liquid assets set aside to enable a major purchase like a home, which is why the most common method of home buying is done via a mortgages or a mortgage loan. To have a “mortgage” loan means you receive funds from a lender to purchase a property. Your money is more secure coming from an established financial institution than an individual lender. Once a contract is established, the lender purchases the home and the borrower makes monthly payments to the lender. When the borrower pays of the entire loan plus interest, the lender is removed from the deed and the borrower becomes the sole owner of the property. If the borrower defaults on making their monthly mortgage payments, the lender can take possession of the home and resell it.Frequently Asked Questions
1What Terms Should You Know?
Here are some terms you may hear when pursuing your first mortgage:
- Property: The physical residence that will be financed.
- Mortgage: The home loan or “security interest” of the lender to the property.
- Lender: The financial institution or licensed person originating a mortgage loan.
- Interest: A fee that comes with using the lender’s money. This can be a fixed or unfixed interest rate each month depending on your loan agreement.
- Principal: The original size of a home loan (equals the agreed-upon value of the property) before interest rates are factored in.
- Foreclosure/Repossession: When mortgage payments and other agreements are not met, the lender can take control of the property and repossess it from the borrower.
- Fixed-Rate Mortgages: The interest rate--or fee to use the lender’s money—stays the same for the life of the loan agreement.
- Adjustable-Rate Mortgages: The interest rate will be fixed for a period of time, but may adjust up or down depending on the housing market.
2How much money is a typical down payment?
Some mortgage loans may require as little as *3% down, whereas others may require as much as 6% or more of the total cost of the house. You must pay a down payment to purchase a home with a mortgage loan. (% of the agreed-upon value of the property)
3Do I need good credit to have a mortgage loan?
Not in all cases, but you have a better chance for having a lender give you a mortgage loan with a favorable interest rate if you have good credit. The lower your credit score, the higher the cost of your mortgage, interest, and monthly payments. Aim to be above a 620 score before you start the mortgage process.
4What are closing costs?
Be aware that there are charges you must to pay when your loan is finalized. When selling a home or buying, there may be a 2-3% of the property value you may have to pay through fees and closing costs.
5Should I do a shorter or longer loan term?
The most common loan terms are 15 and 30-years. You can pay off a home quicker with a 15 year loan with a lower interest rate than a 30-year loan. However, the house of your dreams may only be possible with a longer loan term, as the monthly payments are lower.
6What do you need for a first consultation?
New borrowers conservatively what they can afford and choose possible properties accordingly. You’ll also want to bring income verification in the form of paychecks, tax returns for the last 2 years, W-2s, 1099s, etc. Financial documents will need to be filled out with information from both your driver’s license and social security card, bank statements, and proof of funds, so bring all of these with you to a consultation.
7What Does It Mean to Refinance Your Mortgage?
Do you want to pay off your mortgage sooner? How about a smaller monthly payment? Maybe you have a high interest rate you would love to lower? Every stage of life brings new adventures and new challenges. We can help you pay off your mortgage at an interest rate that works for you and can even help lower your monthly payment or convert your interest to a fixed rate. To refinance your mortgage or achieve any of these goals, you will want to be prepared with information such as:
- Value of your home
- Your total current monthly payment
- Current interest rate on that payment
- Existing balance/balances on mortgages
- Annual homeowners insurance
- Your anticipated annual real estate taxes (optional)
8Are There Extra Factors of Which Should I Be Aware?
We hope that every one of our clients can have the home of their dreams. However, part of that comes with being smart with your money. Always know how much your mortgage payment is each month and that it doesn’t take up too much of your take-home pay. If the percentage of your actual mortgage payment is too high, you may not adequately meet monthly loan payments or keep your investment over time. This is why mortgage calculators and tools come in handy when choosing a mortgage that fits your income. Always check rates, compare your loan options and estimate the price ranges your home needs to fit into to make a purchase feasible. We can help you with all of this. If you find that your mortgage would exceed what you are able to pay, you can work with Lending Studios with monthly payments, interest percentages, and more to make your home work with your budget.
9What About a Second Property?
Many people would love a second home, vacation home, time-share, etc. Those investments would also require a mortgage payment, and having a second mortgage is actually surprisingly possible. Mortgage loans are also part of buying an investment property or starting up a business. As every physical area of work or living may require a separate mortgage payment.
10What Online Tools Can Help Me Assess My Readiness to Buy?
Our mortgage calculators are a great tool to gauge your readiness for particular types of lending products:
11How Soon Can You Get a Home?
We work with clients of all incomes, ages, and stages of life. There are so many options that can work for you when buying your first home if you work with a mortgage consultant through Lending studios. We can help you with the loan amount, the type of loan you need, eligibility for property type requirements, and more. If you choose a low down payment on a home, keep in mind that mortgage insurance is generally required, which can affect the cost of a loan and monthly payments.
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