What is a mortgage?
The purchase of a home might just be the biggest, most important purchases you’ll make in your life. As a first-time home buyer, it’s important to understand what a mortgage is and how the home buying process works.
Your mortgage is the loan you will use to buy your home. There is an amount borrowed (principal); a rate of interest paid to the lender; and, a predetermined number of years over which the loan must be repaid (term).
A mortgage is different from other loans in that it is specifically used for the purchase of real estate. There are many loan products and loan types to suit specific borrowers needs, including down payment assistance options and VA loans, to name a few.
Your mortgage lender will help you build the loan that best fits your needs.
How does it work?
With a mortgage, the home buyer borrows money from a lender. Typically, but not in all cases, a down payment is made. For example, if the buyer purchases a home for $200,000 and gets a mortgage for $160,000, the home buyer is responsible for bringing the remaining $40,000 to closing as the down payment.
Just as down payment options differ (some programs require $0 down payment, while some require 20% down) mortgage terms differ, too. Most lenders offer 10, 15, 20 and 30 year options, with the most popular option being the 30 year fixed rate loan.
How do I qualify?
To qualify for a mortgage, you must meet the minimum standards of whichever loan type you determine is best for needs. Each loan type is different, with varying qualification standards. First, you will need to meet a minimum credit score requirement. Next, you will be asked to verify your debts and income. debts will be verified using a recent copy of your credit report, while income can be verified using documents like W2s and paystubs. Your lender will also want to verify your employment history and your savings (or source of down payment funds).
What should my down payment be?
As mentioned earlier, when you’re buying a home, the amount of money you bring to closing is known as your down payment. Depending on which loan program you choose to use, your minimum down payment will vary.
VA loan: 0% down payment required
USDA loan: 0% down payment required
Conventional loan: 3% down payment required
FHA loan: 3.5% down payment required
What will my payments be?
Your monthly mortgage payment depends on three things: the amount of money you’ve borrowed, your mortgage interest rate, and your loan term. In addition, your lender will likely set up an escrow account for your property taxes and homeowners insurance.
What is the first step?
The first step in qualifying for a mortgage is to consult your lender. Your lender will help you crunch the numbers based on your budget, income, down payment, and goals. From there, you can apply for a pre approval. With a pre approval letter in hand, you’ll be ready to start your house hunting!