Important Things to Know Before Getting a Mortgage
Buying a home is the epitome of an adult’s dream – everyone wants to own their own home, to have their own space. But buying a home does come with one big financial commitment: a mortgage. A mortgage is a long-term loan that you’ll be responsible for over decades.
Surprisingly, as common as mortgages are, many people don’t fully understand them. These home loans can be complex and confusing. Do you know what’s involved in securing a mortgage? Here are just a few important facts you should learn before you begin the process of taking on a home loan.
Calculate How Much of a Mortgage Payment You Can Afford
Before you can even consider applying for a mortgage, it’s a good idea to understand what you can afford. Your mortgage will set the rate you pay every month – basically, it will determine your monthly house payment.
And before lenders are willing to hand over hundreds of thousands of dollars in a loan, they need to make sure that you’ll be able to afford those monthly payments. No lender wants to take on a potential borrower who might default.
Use an online mortgage calculator to determine how much you can afford. These calculators, which you can find by searching online, will help you figure out your ideal mortgage payment. Using your income and any other bills or debt, they’ll show you what’s within your budget.
Your Down Payment Can Vary
It’s common knowledge that buying a house requires a down payment of between 10 to 20 percent. While 10 to 20 percent certainly is standard, it isn’t your only option.
It’s actually possible to get a mortgage without putting 10 to 20 percent of the total purchase price down. You could get away with a down payment that’s as small as 3.5 percent. Some programs may even let you put less down.
Do your research and look into different mortgage options. There are legitimate programs available that help individuals buy homes with very small down payments. For example, FHA loans offered by private lenders and backed by the Federal Housing Administration allow homeowners to put down just 3.5 percent as a down payment.
Programs like these can help anyone who might not be otherwise able to afford a home secure a mortgage.
You Need Good Credit
Good credit is required for all kinds of financial products, but it’s especially important for mortgages. Lenders only want to loan money to those who aren’t considered high-risk.
A solid credit score is the best way to prove that you’re a good borrower. It shows that you can handle loans and make payments on time. After the financial crisis of 2007, good credit is even more important to lenders as they decide who’s approved and who’s denied for mortgages.
There Are Different Mortgages for Different Homebuyers
Not all mortgages are the same. While every mortgage is used to purchase a home, not all mortgages are available for all borrowers. And, depending on your unique financial situation, you may qualify for one specific kind – or perhaps a few different mortgages.
A 30-year fixed-rate mortgage is one of the most common types of mortgages. It’s also considered to be one of the safest and most secure options. But it’s not the only choice.
First-time home buyers can qualify for mortgages that others cannot. For example, they may qualify for special financing programs or FHA loans. Any home buyer might qualify for more complex mortgages, like interest-only and adjustable rate mortgages. Even negative amortization mortgages are an option for some individuals.
Do your research to figure out which type of mortgage is best for you. It pays to learn about all types of mortgages, so you can make a smart financial decision before taking out a huge loan. If you know what options are available, you’ll be able to choose wisely.
You Can Refinance Your Mortgage in the Future
If you’re worried about the interest rate or terms of your mortgage, keep refinancing in mind. When you’re ready – and when the time is right – you can find a new lender who offers better interest, better loan terms, and a better financial outcome for you.
When you refinance your mortgage, you essentially pay off your original mortgage and take out a new one. You’ll likely work with a new lender, who will pay off your mortgage for you. Then, you’ll sign a contract for a new mortgage with new terms and conditions. It may come with lower interest, lower monthly payments, and other potential financial benefits.
And there are plenty of reasons to consider refinancing. If your credit has improved, you may qualify for more options. If interest rates have fallen, you could save thousands of dollars over the lifetime of your home loan. If you have home equity, you may be able to take advantage of that cash value.
Refinancing a mortgage is a great way to make your original mortgage more affordable and more manageable. And there are plenty of lenders out there who can help you achieve the right mortgage through the refinancing process. Choosing to refinance your mortgage can be a huge benefit when you do so for the right reasons – and if you do your research ahead of time.