Your dreams are now a reality; you have your own home. But there is a not-so-beautiful challenge, also known as a mortgage, between you and enjoying your first-ever place. So if you are a brand new homeowner and buyer, then here’s how to cover your bases.
What Is a Mortgage?
In simple words, a mortgage is just a kind of loan one takes out to buy a home or any other type of real estate.
The home or your desired property is generally used as collateral, so if the borrower fails to make those monthly payments the bank or any money lending institution can easily take ownership over the property.
When it comes to mortgages and becoming a homeowner getting mortgage advice is your best bet. So let’s jump into it and go through the terms and rates of interest of mortgage rates.
Types of Mortgages
- Fixed-rate Mortgage: A fixed-rate mortgage is a kind of mortgage where the interest rate is very much set. It doesn’t decrease or increase for the entire period of the loan.
- Adjustable-rate Mortgage: Adjustable-rate mortgages (ARMs) are pretty flexible and have a movable interest rate that adjusts over the period.
- Interest-only Mortgage: Interest-only mortgages allow you to pay only the principal’s interest for the time being. Paying off the principal can be done later after the period is complete.
How Much Can You Afford?
Lay down your earnings through your spending on paper, then you can use the 28/36 method, that is, the lender rule of debt. You have to keep your mortgage payments under 28% of your monthly gross income, and all the debt that you have to pay should not cost more than 36% in total.
Saving for a Deposit
Making a down payment a.k.a deposit typically means giving the lender a particular fraction of the total worth of a property upfront.
You should also know that the more money you deposit, the lower your interest rate and monthly payment. A longer payment of 5% will be suitable for a lot of lenders on board, but exchanging 20% is best to stand on better terms.
How Credit Scores Help
Verify your credit score and correct any errors as soon as possible. If necessary, take action to improve it. Paying off your debts and avoiding more debts can help.
Getting Pre-Approved
Pre-approval can boost your chances of getting a home if there are other bidders. Undergoing pre-approval means that a lender will look closely into your finances to determine if you would be shortlisted for a mortgage approval based on the stability of your income, credit score, and more.
With this information, the seller will take note of your willingness and capability to buy the home. Plus, it’s free!
To become pre-approved, you will need to submit financial documents (W-2 pay stubs, tax returns, bank statements, etc.) for the lender to evaluate. From there, they can tell you how much they are willing to lend you.
Final Thoughts
Gripping onto that first home rocks you one step further into the life you’ve pictured.
Understanding the process of acquiring a mortgage and setting your foot out on this new journey allows you to make decisions from a place of mindfulness and assurance when it comes time to sign that paper and welcome your new home.