Taking out a mortgage is one of those life essentials we all have to go through. However, the process can also be confusing and tricky to navigate – especially if you’re a first-time homebuyer. That’s why, at Loan Compass, we’ve put together the essential guide that details everything you need to know about mortgages. Let’s dive right into it.
What Exactly Is a Mortgage?
Let’s start with the basics. A mortgage is a loan that a bank or mortgage lender gives you to help finance the purchase of a home. According to HomeLight, it is best to borrow approximately 80% of the home’s value to have equity in your home from the outset. You will need good credit, a steady income, and a down payment of at least 3-5% to get a mortgage.
How Do I Get a Mortgage?
The first step in getting a mortgage is finding a lender you feel comfortable working with. Once you have found a lender, you must fill out a loan application and provide the lender with documentation of your income, debts, and assets. The lender will then go over these and let you know if you’re a good candidate for taking out a mortgage. If you’re approved, you will then need to go through a loan underwriting process, which is when the lender will verify your information and make sure you can repay the loan.
What Are the Different Types of Mortgages?
There are many different types of mortgages, but the most common are fixed-rate and adjustable-rate mortgages. Fixed-rate mortgages have an interest rate that remains the same for the entire loan. In contrast, adjustable-rate mortgages have an interest rate that can change over time. Government-insured mortgage options, such as FHA and VA loans, may make the home buying process more accessible if you’re eligible.
What Are the Terms of a Mortgage?
The terms of a mortgage are the length of time you have to repay the loan, the interest rate, and the monthly payment. Mortgage terms can range from 10 to 30 years, and the interest rate will be determined based on your credit score, the type of loan you choose, and the current market conditions. The aim, of course, is to be well set up with your particulars so you can secure the best rate possible!
What Are the Costs of a Mortgage?
The mortgage costs include the interest you will pay on the loan and any points, origination fees, or other closing costs that you may be required to pay. Mortgage costs can vary significantly from one lender to the next, as well as by region, so it is important to compare options before making a decision.
Rental Prices Vs. Mortgage
Still unsure if taking out a mortgage is the right move for you? If so, renting might be the way to go. Owning a home usually means having a mortgage, which can be a significant financial burden. On the other hand, renting usually means having a smaller monthly payment – for example, you can find rentals in New York for as low as $700. Whether you should rent or buy a home depends on your unique needs and whether you’re ready to enter the mortgage process.
Ready to become a homebuyer? The best advice we can give you is to enter the mortgage process armed with as much information as possible. This way, you’ll be in the know every step of the way, thus increasing your chances of success. Good luck!
Need support through the home loan process? Loan Compass is here to help with the necessary knowledge and tools to help you save money. Contact us here for more information today!