A mortgage is a loan that you receive from a lender to purchase a home. The lender will allow you to live in the property as long as you make your monthly payments and maintain your end of the deal. Here are four things to know about mortgages:
1. NOT ALL MORTGAGES ARE CREATED EQUAL
It is important to shop around for a great mortgage because they vary significantly in costs and terms. An adjustable-rate mortgage (ARM) will have lower initial interest rates than fixed-rate loans, but you could find yourself paying higher rates later on if the index used to calculate your monthly payments goes up. Meanwhile, other lenders provide flexible payment plans that give homeowners additional options when making their monthly mortgage payments. Another option is to ask your real estate agent or financial professional for advice on what type of loan would best suit your needs.
2. THE THREE CS
Experts say there are three main aspects of any home loan worth considering: capital, collateral, and credit score. Your capital refers to the amount of cash you have to put towards your down payment as well as closing costs. Your collateral is the property that you’re buying, which includes any other loans registered against it. Finally, your credit score will affect whether or not the lender approves your request for a mortgage and at what interest rate. The higher your credit score, the better chance you have of getting approved for a loan at lower rates. If you don’t know where your credit stands, check with one of the three major credit bureaus (Equifax, Experian, and TransUnion) to find out for free. You can also speak to a financial professional or request help via Internet-based services like My3Cents’ Credit Analyzer.
3. HOW DO I FIND A LENDER?
Most lenders charge a closing fee to process your mortgage, which usually ranges from 0.5% to 1.5% of the total loan amount. While that might not sound like much, it could add up if you’re taking out a large loan for a big property. So when shopping around for a great deal on your new home’s mortgage, remember to include this cost in your budget and compare several different offers before making a final decision.
4. DON’T TAKE ON MORE DEBT THAN YOU CAN HANDLE
Many factors go into figuring out what size mortgage you can afford. Still, one rule of thumb is taking the household income and deducting taxes, insurance, and other recurring monthly expenses from it. This will help you figure out how much can be spent on home each month. Remember, too, that your ability to pay your mortgage doesn’t end with the monthly payment; homeowners also need money set aside to make repairs and improvements to their homes.
In conclusion, mortgages are a complicated topic. The more you know about mortgage, the better off you’ll be in this process and hopefully avoid any pitfalls.