February 16th, 2017 5:11 AM by Jackie A. Graves
If you’re a newbie home buyer, you may be confused by what
you need to do to snag a mortgage. We’re here to help! So let’s start with the
basics: What exactly is a mortgage?
Since you probably don’t have hundreds of thousands of dollars
lying around, a mortgage is a loan that enables you to cover the cost of a
home. You pay back the loan over the course of years or even decades.
Consider it the biggest, longest, most life-changing IOU you’ll ever give out!
But there’s a surprising variety of choices available. Here’s an
introduction to everything you need to know about mortgages.
Believe it or not, you should shop around for a mortgage even
before you start hunting for a house. It might not be as fun as checking out
open houses, but it’s way more important.
You’re looking to get a mortgage “pre-approval,” which serves two main purposes:
One, it will show the sellers that you are serious about buying a home, which
is particularly crucial in a hot housing market, says Chantay Bridges with TruLine Realty in Los
But more importantly, it will let you know how much home you can
afford. Before you start browsing online listings or visiting open houses, take
a look at our home affordability calculator,
which will give you an idea of how big your mortgage will be.
Here are the main places you can get a mortgage:
When you apply for a mortgage, here are the main terms you’ll
need to know:
payment: This is
the money you must put down on a house to show a lender you have some skin
in the game. Typically lenders like to see home buyers make a down payment
totaling 20% of the price of the home (e.g., $40,000 on a $200,000 home),
although in some cases they’ll take less.
Principal: This is the amount of money that you are
borrowing and must pay back, which is the price of the home minus
your down payment (taking the above example, you’d subtract $40,000 from
$200,000 to get a principal of $160,000).
Interest: Lenders don’t just loan you the money
because they’re good guys. They stand to make money off you, too, since you pay
them back plus interest—a percentage of
the money you borrow.
There are two main types of loans:
Loans also have different “terms,” which means how long you’ll
make monthly payments. The two most common terms are 30 years and 15 years.
The payment on a 15-year loan will obviously be higher each month you have it,
but it will ultimately save you money in interest over the life of the loan.
Since loans come in all shapes, sizes, and interest rates,
you should definitely shop around, much like you’d compare different
laptops before settling on the best one for you. And, since interest rates
fluctuate daily—which will have a direct impact on what you ultimately
pay—you’ll want to do all your research during the same time period as much as
possible, says Brandon
Haefele, president and CEO of Sacramento-based Catalyst
Mortgage and a member of the board of directors of the California Mortgage
Bankers Association. That way, you know you’re making a valid comparison.
Working with a qualified (and patient) loan adviser can help
you sort out your options. They can help you determine which type of
loan is best for your situation and walk you through what your payments would
be for different types and terms of loans. They’ll also break down the various
fees that come with each loan.
By understanding what a mortgage is and all the different types
available, you can make the choice that’s right for you and your budget.
By Angela Colley - To view the original article click here