Mortgage loan appears too complicated to understand for many first-time home buyers. It involves a lot of factors and calculations which could easily confuse anyone. Hence, many people end up getting a lot of financial headaches along the way. The good thing is, such worries are completely avoidable if you would learn essential info about it before finding a home to buy.
Helpful Mortgage Loan Info you should Take Note before Buying a Home
Mortgage circles on three terminologies you should learn. And you should have some ideas about these before going on with specific details.
- Down Payment –the partial amount you should pay upon purchasing a home. Standard nails it on 20% of the total price of a property. But you can find loans which offer lower down payment such as 10%, 5%, 3% or even 0%.
- Principal – this is the amount from the price of a property that the lender should pay. If the down payment of a property is 15%, for example, the principal is 85%.
Interest Rate – this is the profit lenders take from letting you borrow their cash.
Features of a Mortgage Loan
When looking for a home loan, you want one that favors your financial flow. Hence, be sure to consider these factors in making a choice:
1. Length of Loan
This factor indicates the time you can spend in paying back a home loan. The total loan amount plus its interest would be spread through the life of a loan. So, you can pay small parts of the mortgage each month.
The US standard for home loans is 30 years, but 15, 20 and even 40 years are also common. Note, however, that loans with shorter length usually have lesser interest rates. That means smaller extra expenses on your part while helping you clear a loan earlier.
2. Choosing between Fixed or Adjustable Interest Rates
There are generally two types of loans based on interest rates. First is the fixed interest rate, which means you’d have a constant interest rate to pay throughout the life of the loan. On the other hand, adjustable loans have fixed initial interest rates for a few years, but would drastically decrease and increase afterward. The unpredictability of adjustable loans seems intimidating, but the consistent smaller initial rate is favorable if you plan to sell the home after a few years.
Tips for Getting a Mortgage Loan
After knowing the basic factors about home loans, here are essential tips you should remember in getting one:
- Begin by keeping your credit scores up. Be sure to pay all your major debts and credits around 6 months before applying for a home loan, since it affects the amount you can borrow and its interest rates. It’s important not to let your credit fall lower than 500 points, and 600 points or higher is the best level to aim for.
- Aim for mortgage preapproval before you begin shopping for a home. This is good leverage in convincing a seller to give you their property, since you can give assurance of a good financial back-up. Avoid merely getting prequalification since it shows lenders can still reject your application.
- Prepare for closing costs which you’ll spend on the settlement of your deal. This includes tax, recording fees, insurance fees, loan origination fees and appraisal fees among other expenses.
Finally, do not engage with major deals that would affect your credit score during the phase between loan approval and closing. This is to avoid giving doubts and suspicions to the lender about your capacity in paying the loan.
Taking note of these info would help you have favorable mortgage loan for buying a new home. This helps you secure a financial back-up for your purchase.