Do you want to own a home but need help knowing where to start? Maybe you're unsure what a mortgage is or wonder if you'll qualify for a loan. Well, you're in the right place.
Today, we will break down the home-buying basics and make mortgages simpler. You will learn answers to these questions:
What is a mortgage?
What are the different types of mortgages?
How can you decide which mortgage type is best for you?
The information in this post will give you the knowledge to apply for a mortgage and buy the home of your dreams!
What is a Mortgage?
So, what is a mortgage? Simply put, a mortgage is a loan you obtain from a lender to finance the purchase of a property. The borrowed amount is paid back over some time, generally with interest.
Not everyone who buys a home takes out a mortgage, but most homeowners do. A mortgage is a financial agreement between you and a lender to help you buy a home if you can't pay for it "out of pocket," which means with cash.
What Is the Difference Between a Loan and a Mortgage?
A loan is an amount of money that one party borrows from another with the agreement to pay it back over time with interest. A mortgage is a specific type of loan used to finance the purchase of a property.
Unlike an unsecured loan, a mortgage is a secured loan—this means it requires the borrower to pledge collateral, usually the property itself. With a secured loan, if the borrower fails to make payments, the bank/lender has the right to seize possession of the property through a legal process called foreclosure.
3 Different Types of Mortgages
There are many different types of mortgages, but we will consider the three main kinds today:
Fixed-Rate Mortgages
Adjustable-Rate Mortgage
Government-Backed Loans
Fixed-Rate Mortgages
With a fixed-rate mortgage, the interest rate stays the exact same for the duration of the loan term. Though loans vary, the most popular terms for fixed-rate mortgages are either 15 or 30 years in length.
Many homeowners prefer a fixed-rate mortgage when they expect interest rates to increase and want to ensure their monthly expenses remain the same—financial planning and budgeting are essential to maintaining good credit, after all.
To learn more about fixed-rate mortgages, click here for our complete pro/con list.
Adjustable-Rate Mortgage
An adjustable-rate mortgage (often abbreviated ARM) is a kind of mortgage loan where the interest rate can change over time based on market conditions. This means the interest rate and your monthly payments can go up or down depending on the current economic conditions in your country or state.
Government-Backed Loans
Government-backed loans include many sub-loan options, such as FHA loans, USDA loans, and VA loans. These loans, offered by mortgage lenders, are designed to make homeownership more affordable and accessible for specific groups of people.
Since they are backed (or protected) by government agencies, lenders feel more comfortable providing loans to those with lower credit, who can't make a down payment, or who have other issues getting a traditional mortgage. Feel free to click the links above to learn more about these mortgage options.
What Mortgage Type is Best for You?
Selecting the ideal mortgage for your home involves careful evaluation of different factors.
Your credit score, other personal financial circumstances, the features of the property you intend to purchase, and your future goals are all vital considerations.
By carefully weighing these variables, you can make an informed decision and identify the mortgage that aligns best with your needs. An experienced mortgage professional can help you make the right choice.
How to Get a Mortgage
Applying for a mortgage is simple, but there are steps you need to take to prepare. Doing so will increase your chances of being approved (or accepted) by the lender for your loan.
Evaluate your finances and determine a budget.
Submit financial documents to your bank for loan pre-approval.
Find a property and make an offer.
Submit a formal loan application with additional financial documents.
Complete a home appraisal and inspection (yes, lenders require it.)
Allow time for loan processing while the bank assesses your application.
Review the final loan agreement.
Accept or negotiate the terms and close (another term for completing the final paperwork and making the closing costs and down payment.)
Allow the bank to distribute the funds to the seller, and you become the owner of the property.
Mortgage Help from Mortgage Experts
Now that you have a better understanding of the mortgage world, do you have questions about your specific circumstances? Would you like to receive help as you pursue buying your dream home?
At The Mortgage Minds Group, we want to help you enjoy this exciting process. Click here to get in touch and learn how much money you can get to put toward your new home!
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