When it comes to buying property, most people can't afford such a large purchase on their own. Instead, they're advised to save a small percentage of the value of the home they might qualify for, asking a bank or other lending institution to finance the balance of the sale price. This is called a mortgage, and it's usually repaid, with interest, over the course of 15 to 30 years. This sort of system has been around for hundreds of years, and is the backbone of the real estate market. With the help of your real estate agent, you should be able to shop around for the best mortgage broker and competitive mortgage rate.
This post will help you to understand everything you need to know about a mortgage, giving you the chance to make the most out of yours.
This post will help you to understand everything you need to know about a mortgage, giving you the chance to make the most out of yours.
Getting The Most Out Of Your Mortgage
Types Of Mortgages
The types of mortgages which you will find will vary from place to place, with each country having its own financial laws and regulations. Here are a few of the most common that you'll find in the United States:
- Fixed rate mortgages. A fixed rate mortgage is ideal for homeowners who plan on staying in their homes for the majority of the term of the loan.
- Variable rate mortgages. A variable-rate mortgage is perfect for those planning to sell their homes or paying off their mortgage within 10 years or so.
- Refinance Loans. If you want to reduce the interest rate of your current home loan, or if you are looking to consolidate debt, refinancing may be a good option.
- Construction and Renovation Loans. A construction or renovation loan can help you build a new home or make home improvements to an existing one.
There are very few bad options out there when it comes to mortgage types per se, though if you're feeling confused, talking to a financial advisor can be a great way to get a better understanding of what may be best for you and your situation.
The Amount You Repay
To get an idea of just how much your monthly mortgage payment will cost each month, start with an online mortgage calculator. The calculator will take into account the principal amount borrowed, the length of the loan and the interest rate you're considering. You can even include property tax, insurance and PMI (private mortgage insurance) payments, to get a better idea of your potential monthly payment. Keep in mind that this is just a guide; your lender will be able to provide you with a more comprehensive look at what your monthly payment will be including other factors, such as HOA fees.
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The Mortgage Company You Choose
While other aspects of your mortgage might seem a little more important, it’s always worth thinking about the company you choose when you’re applying for a mortgage. The commitment you’ll be making could potentially last for decades, and this means that choosing a bank with a good reputation is paramount. Along with this, it can also be worth looking for a company which has always worked to provide their services ethically. There are few things worse than finding out you have a loan tied up with an unstable company who simply doesn’t care about you as a customer. If you do happen to find yourself with a lender who's gone bankrupt, it doesn't mean you'll lose you your home: chances are your mortgage, along with others, will be bundled and sold to another lender, and the terms of your mortgage agreement will not change.
The Fees You'll Pay
All mortgages come with fees, some more hefty than others. It's important to know what you're paying for at closing time, so you aren't hit with surprise costs and fees that you weren't expecting. Here's a few you'll need to consider:
Credit Report: Pulling your credit report is an essential part of your mortgage application, and is usually one of the very first steps of determining your creditworthiness. Many lenders will absorb the cost of the credit report, but if yours doesn't, you can expect to be charged anywhere from $25 - $50.
Document Preparation Fee: It costs money to prepare the mountain of paperwork a mortgage entails, and someone has to pay for it. It doesn't hurt to ask your lender if they can build the document prep fees into the mortgage itself. Document preparation fees range between $50 - $100+, depending on your lender and location.
Loan Origination Fee: This is one of the larger fees you'll incur during closing, so be prepared. The loan origination fee is an upfront fee charged by a lender for processing a new loan application, and it is about 1% of the total loan. For example, if you take out a $150,000 mortgage, the fee would be $1,500.
While other aspects of your mortgage might seem a little more important, it’s always worth thinking about the company you choose when you’re applying for a mortgage. The commitment you’ll be making could potentially last for decades, and this means that choosing a bank with a good reputation is paramount. Along with this, it can also be worth looking for a company which has always worked to provide their services ethically. There are few things worse than finding out you have a loan tied up with an unstable company who simply doesn’t care about you as a customer. If you do happen to find yourself with a lender who's gone bankrupt, it doesn't mean you'll lose you your home: chances are your mortgage, along with others, will be bundled and sold to another lender, and the terms of your mortgage agreement will not change.
The Fees You'll Pay
All mortgages come with fees, some more hefty than others. It's important to know what you're paying for at closing time, so you aren't hit with surprise costs and fees that you weren't expecting. Here's a few you'll need to consider:
Credit Report: Pulling your credit report is an essential part of your mortgage application, and is usually one of the very first steps of determining your creditworthiness. Many lenders will absorb the cost of the credit report, but if yours doesn't, you can expect to be charged anywhere from $25 - $50.
Document Preparation Fee: It costs money to prepare the mountain of paperwork a mortgage entails, and someone has to pay for it. It doesn't hurt to ask your lender if they can build the document prep fees into the mortgage itself. Document preparation fees range between $50 - $100+, depending on your lender and location.
Loan Origination Fee: This is one of the larger fees you'll incur during closing, so be prepared. The loan origination fee is an upfront fee charged by a lender for processing a new loan application, and it is about 1% of the total loan. For example, if you take out a $150,000 mortgage, the fee would be $1,500.
Infographic courtesy of Zillow
Hopefully this bit of info on mortgages and what you can expect from them helps you with your decision when it comes time to find a lender. If you're unsure where to turn remember, you can always count on your real estate professional to provide you with recommendations.
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