When hearing the term mortgage, it may sound intimidating. There are many homeowners that talk about paying on it, but not everyone understands what a mortgage really is (especially those who are not yet a homeowner). For those who are confused, and maybe a little scared, about what a mortgage may be, we have broken it down into a pain-free explanation.
What Is a Mortgage?
To put it into simple words, a mortgage is a loan that is taken out to help you buy a home or property. Sounds a lot less scary, doesn’t it? Originally, it was difficult to buy a home because so many families did not have the money for it. However, over time, mortgage loans were created to help those who may not have the money up front but can pay it off as time goes by. There are several different types of mortgages to choose from because not every home buying situation is the same. Although they all require some form of repayment, they all have unique features that can benefit some homeowners more than others. Here is a quick glance of the main loans you can expect to find in your search.
Requires high credit score.
Can borrow up to 95% of home’s value.
Very common option from a variety of lenders.
Federal Housing Administration (FHA) Loans
Credit score can be as low as 580.
Can borrow up to 96.5% of home’s value.
Limited primarily to banks, but some brokers will offer it.
United Stated Department of Agriculture (USDA) Loans
Accepts credits that are not high.
Can borrow up to 100% of home’s value.
Limited availability, but banks can underwrite them.
Department of Veteran Affairs (VA) Home Loans
No set credit score and very forgiving of credit problems.
Can borrow up to 100% of home’s value.
Limited to active duty and retired soldiers who have served at least 90 days.
Requires extremely high credit score (700 or higher).
Can borrow 70 to 80% of home’s value.
Limited availability and terms differ between lenders.
In the event that you are not able to pay the 20% portion of your down payment, the bank steps in with Private Mortgage Insurance (PMI) that is a yearly fee you have to pay. This fee is a percentage of your home’s cost until you have paid off the 20%.
It is wise to know that all these mortgages listed above are influenced by interest rates, therefore determining how much you pay long term. They include:
Adjustable-Rate Mortgage: A loan with an interest rate that changes and may start with lower monthly payments.
Fixed-Rated Mortgage: Interest rate remains the same throughout the term of the loan. As a result, payment amounts are consistent.
Where Do I Get a Mortgage?
An easy way to find a lender that will provide your mortgage loan is to ask your realtor. They are experts in not only helping you find the perfect home, but buying one as well. They know all the different tips and tricks to help you find the right lender who will then provide you with the right mortgage plan.
How Do I Get Approved for a Mortgage?
Although we would all love to afford our lavish dream home by using a hefty loan, it doesn’t work that way. After you have found your lender, they will crunch numbers with you to figure out how much you can be approved for. Things they will look at are: your income, your credit score, and any debt you may have. By this, they can determine if you will be able to pay off the mortgage in time; therefore, you will have a better understanding about what home you can actually afford rather than you wish you could afford. From there they will tell you the percentage of how much they can cover. The type of mortgage you choose along with the lender you work with will also have an impact on your down payment.
How Long Will I Have to Pay Off My Mortgage?
A mortgaged is secured for 10, 15, 20, or 30 years with 15 and 30 being the most common. It does take time to pay off the loan, but it is doable.
Whether you are selling or buying, we understand that there is a lot that goes into the process. Luckily, at Cooke Realty, we have expert staff who are willing to work with you through each step of the way. When you are ready to begin your journey, give us a call at 615-574-7359. We would love to speak with you!