Understanding Your Mortgage
Most buyers need one, and there are a lot of options that vary greatly from lender to lender and from buyer to buyer. This means it's important to understand what you're looking for and talk to a lot of different lenders to ensure you're getting the best deal possible.
Types of Mortgages
There are four basic types of mortgages used by the majority of home buyers.
1) Conventional Mortgage:
This is the standard loan used by buyers with good to excellent credit who make down payments of at least 10%. However, there are programs that offer options for lower down payments based on buyer credit and location.
2) FHA Mortgage:
These loans often apply to buyers with lower credit scores, as they offer a down payment as low as 3.5% and lower interest rates. However, FHA mortgages do also require mortgage insurance premiums, which can result in higher overall costs.
3) VA Mortgage:
All veterans and active military members qualify for VA loans. These offer up to 100% financing, simplified loan approvals, and lower interest rates. They can be much lower than conventional loans.
4) USDA Mortgage:
These loans are available to buyers in rural or low-density areas and offer up to 100% financing and below-market interest rates. Their ideal buyers are of average means, have lower credit scores, and are buying modest homes. Additionally, because of the government's loose definition of the term "rural," some of the buyers in the smaller communities surrounding Raleigh will qualify for this loan.
What Do Mortgages Include?
There are four main components to a mortgage payment, often abbreviated as "PITI."
This is the repayment of the initial amount you borrowed from your lender (in other words, the price of your home).
This is a payment to the lender for the money borrowed (and is then added on to the initial price of your home).
Your annual city and county taxes assessed on your property are divided by the number of mortgage payments you make in a year and added into your mortgage.
Your monthly homeowner's insurance payment covers you against various hazards and is added to your mortgage payment.
Going Loan Shopping and Understanding Your Options
Before you decide on any particular loan or lender, it's important to do your research. That means meeting with AT LEAST two different lenders to ensure that you're getting the best rate possible. It's also important to understand two different types of interest rates offered by mortgage lenders.
1) Fixed-Rate Mortgage:
The interest on an FRM will not change, so your monthly payments won't change, making them very predictable.
2) Adjustable-Rate Mortgage:
The interest rate on an ARM will often be lower initially, but as interest rates do fluctuate with the market, they can be somewhat unpredictable or even result in higher payments.
Still Have Questions?
That is where I come in, buying your first home is no simple process, and although I have tried to provide as many important details about mortgages as possible, there's still so much more. Contact me today at 704-941-0624 for more information.
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