Best Mortgage Guide
Buying a home is probably the most important financial transaction you’ll make in your life, no matter what. If you are a first-time buyer or buying a second/third home. It is a stressful process and requires careful planning. This first-time buyers’ mortgage guide can help you understand the whole process.
Becoming an owner is one of the first steps toward earning financial independence. That’s because, as a homeowner, each mortgage payment you make adds to the equity you own on your home—increasing your net worth.
At National Resource Connect, we’ve compiled the following mortgage guide, which covers everything you need to know about home buying. This Mortgage guide will explain why having a mortgage is a good thing, how to get one, what types of mortgages there are, what the current interest rates look like, and more.
First, cover the basics and answer some questions about the mortgage guide.
The Value of Home Ownership
There are several benefits to owning your own home. First, you’ll have a permanent residence that your family can enjoy for as long as you’d like, and you can also customize your living space however you want. You also don’t have to worry about a landlord increasing your rent or having to move to a new place every few years.
Homeownership is usually a good financial investment. Each month, you’re increasing your net worth with every mortgage payment. If you sell your home, you’ll most likely pay back. The equity you’ve established, and hopefully then some. In most areas of the United States, home values increase.
So, owning a home is an investment in your family’s future. When you rent an apartment, the rental money you pay each month adds to your landlord’s net worth—and that’s money you’ll never get back.
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How Mortgages Work (MORTGAGE GUIDE)
Because of the high price of most homes, very few people can afford to pay for a home outright with cash. According to Zillow, the median home price in the U.S. is $231,700. So, to pay for a home purchase, people often take out a loan from a bank or lender, called a mortgage.
Mortgages typically cover the cost of a home purchase after the down payment is made. As a borrower, you repay this mortgage loan to the bank over the years through monthly mortgage payments. A typical mortgage term is thirty years, but there are also ten and 15-year terms.
What is a Down Payment?
For mortgage, a very popular statement buyer asks how a mortgage with a low down payment works. So what is the down payment? When you buy a home, you’ll typically approach the transaction with some money ready to pay immediately toward the home purchase. Down payment amounts typically range from 5% to 20% of the home’s selling price. Generally, the more money you can put down, the better.
How Much Money Should You Put Down?
Your down payment should be at least 20% if you can afford it. That’s because if your down payment is less than 20%, you’ll likely have to pay for private mortgage insurance (PMI).
PMI is an insurance policy. Paid for by the borrower, which protects the lender in case of a default. (A default is when the borrower stops paying their loan.) Lenders require PMI because borrowers with less than 20% equity are likelier to walk away from their loans, which is a huge problem for banks/lenders.
As a result, if you don’t have a 20% down payment, you must pay PMI, which typically costs 1% of your loan amount annually.
Let’s say you want to buy an average-priced home at $231,700. If you put 10% down, your mortgage loan would be around $208,530. Since you only put 10% down, your annual PMI cost will be around $2,085, or $174 each month.
This is money down the drain because you don’t get that money back if you sell your home as you do with your mortgage payments.
Therefore it’s recommended to save up 20% for a down payment.
If putting 20% or even 10% down is out of the question, don’t worry. You can probably still qualify for a loan if you have a steady job, some money saved up, and a decent credit score.
For example, first-time home buyers can qualify for an FHA loan, which is a government-backed loan that allows you to put as little as 5% down.
Overview of Mortgage Terms and Interest Rates
To understand the mortgage guide, let’s first understand banks make money from interest fees charged on the money you borrow. At the time of this writing, the average interest rate on a 30-year fixed mortgage in the U.S. is 3.73%. Three to four percent might not sound like much, but people are often shocked to see how quickly it adds up.e
Returning to our $231,700 sample home—let’s say you put down a full 20%. Your loan will be around $185,000. Using the nifty tool at Mortgage calculator, you can see that with a traditional 30-year loan, at an interest rate of 3.73%, you’ll wind up paying close to $123,000 in interest.
That’s right—over $100,000 of your hard-earned money going straight into the lender’s pocket. And this number only goes up if you have a bigger mortgage. No wonder why banks are so eager to lend money!
If you want to pay less in interest—and who doesn’t?—your options are:
- Put more money down. Any extra money you can put down upfront lessens the money you have to
borrow from the bank. You’ll pay less interest.
- Take out a shorter loan term. In our example above, if you were to take out a 15-year loan instead of 30 years, you’d pay only around $57,000 in interest instead of $123,000. Your monthly payments would be twice as much, which many people can’t reach.
- Make additional payments. If you’re set on taking out a traditional 30-year loan, you can make extra monthly payments to pay it off sooner. The more you pay each month, the quicker you’ll pay off your loan and the less interest you’ll pay.
- Buy a less expensive home. It’s easy to get distraught when shopping for homes. Remember that the bigger your loan is, the lower your chances of paying it off.
- The Mortgage Application Process So you’ve taken the plunge and want to buy your first home. Let’s look at the steps you’ll want to take to ensure the process goes as smoothly as possible.
So you’ve taken the plunge and want to buy your first home.
Let’s look at the steps you’ll want to take to ensure the process goes as smoothly as possible.
Step 1: Check Your Credit Score Before Mortgage
Firstly, check your credit score. Why? Because your credit score determines if you can get a loan. Your credit score also influences how much money you can borrow and what interest rate you’ll pay. If you have bad credit, unfortunately, getting a loan from a private lender might be tough. However, you might still qualify for an FHA loan.
Step 2: Don’t Take Out Any New Loans or Debt before the Mortgage
If you’re serious about buying a home and want the best Mortgage guide, now is not the time to buy a car or finance an expensive HDTV. That’s because any new loans you take out will cause a hard inquiry on your credit score, temporarily lowering your score.
As a result, when you apply for a mortgage, you might get hit with a higher interest rate because of your credit score is lower at the time of your application.
That said, it’s best to take things one step at a time. Get your mortgage application and home purchase handled before making other big purchases.
Homeownership also has unforeseen costs that might arise, like renovation and maintenance costs. That’s why we recommend getting settled into your home and starting to make mortgage payments for a few months (or even a year).
Then you’ll be in a much better position to see if there’s any money left over for a large purchase.
Step 3: Choose a Lender To Mortgage
Once you’ve got all your financial ducks in a row, it’s time to shop around for a mortgage loan. Thanks to technological advances, millions of Americans are applying for mortgages daily, right from the comfort of their home.
At National Resource Connect, we’ve partnered with the nation’s leading mortgage lenders.
In just a few minutes, you’ll be able to find out if you qualify for a mortgage and get an idea of what your monthly payments will look like.
Types of Mortgage
If you want to know about the best Mortgage guide, you’ll tell us a little more about the home you’re looking to purchase, like if it is a single-family home or a condo, what is the selling price, and when you plan on buying it.
You’ll then be matched with lenders in your area that can help you buy your home. It’s that easy!
Getting Settled in Your New Home
If you’ve made it this far, you may be on your way to buying your first home. Congrats!
Remember that this is an important step in securing the best Mortgage guide. Take care of your home and make your mortgage payments on time. It’s almost guaranteed that your investment will pay for itself over time. You might even earn a profit if you decide to move down the road.