Buying your home will probably be the biggest and most important investment you’ll ever make. All the information you need is here to help secure your family’s home and financial future before you sign on the dotted line.
What is a home mortgage and why do I need one?
A home mortgage is simply a loan from a bank, or other lender, to buy property. Let’s say you have the money to make a modest down payment on your dream home, but not enough to buy it outright. In that case, like most people, you’ll need a loan to make your dream come true. For example, the usual down payment on a home is 20% of the property’s value, so to buy a $200k home, you’d pay $40k upfront and would take out a $160k mortgage to cover the balance due on your castle.
The amount of money you borrow to buy your home is called the principal, and interest is a percentage of the principal you agree to pay in order to get the loan. Of the two most common kinds of home loans, a fixed-rate mortgage (FRM) is the simplest and most popular.
With an FRM the interest rate and monthly payment stay the same for the life of the loan, which is usually 30 years. The second most popular type of loan is an adjustable-rate mortgage (ARM), or variable-rate mortgage. An ARM is more complex because the interest changes over time based on the prevailing rate for the entire mortgage market.
An FRM has the highest rate and the amount you can borrow is limited. The biggest problem with an FRM though is that if rates fall, you already agreed to pay the higher rate.
On the other hand an ARM may seem attractive because the initial payments are often lower. However when market rates climb, you may struggle or even fail to make your monthly payments. When considering a mortgage it’s important to make sure your income can match the maximum interest rate for the loan.
In the end, the home mortgage you choose depends on how much you can afford to pay every month over the term of the loan. It’s also important to understand that the total cost of your home is more than just the down payment, and the principal plus interest. The price you pay to live your dream includes closing costs, property taxes, and the price of home owner’s insurance.
You recently decided that you are ready to buy a home. Time to start doing some shopping, right? Not so fast. Applying for mortgage prequalification or mortgage preapproval can remove some of the guess work that goes into shopping for your dream piece of prime real estate.
Unsure about how much of a home can you really afford? A mortgage prequalification can help you significantly narrow down the choices. How? By showing you how much of a loan you’re qualified for. Want to increase the chances of finding a home? A preapproval can greatly increase your attractiveness to an eager seller and get you to closing on your new home in as little as 30 days.