This may seem like a simple question, but it never hurts to review the basics and not-so-basics when it comes to exploring what is a mortgage.
First things first, what is a mortgage?
A mortgage is a home loan, which uses your house and land as collateral. You are still an official homeowner even if you have a mortgage, but this does mean that if you fail to submit payments for your home, your lender and bank has the right to foreclose on your property. This is because they retain a lien, or a right to obtain possession of another person’s property, on your home until your mortgage is paid.
Can anyone get a mortgage? How do I get pre-approved?
In order to secure a home loan, it’s important to start with a reality check: would you qualify for a mortgage of any type? For some, certain factors limit their eligibility for home financing. If this is a concern for you, The Antonov Group can also help you explore new paths to homeownership, which can provide different financing and home buying options. Once you’ve determined a sense of your eligibility, you’ll find that specifics will help you determine a more solid estimate. Evaluating your financial position and capabilities is a great start when it comes to getting a mortgage (Home Buyer Tip: Check out our guide on How to Get a Mortgage!). Use an online calculator to find your Debt to Income ratio (DTI) as well as your potential monthly payments and interest rates. Knowing your numbers help you walk into your lender appointment with confidence!
I hear so much mortgage jargon, especially about fixed and adjustable rate financing
These are the most popular types of mortgage for home buyers. Both have benefits and drawbacks, and it’s up to you, your agent and your lender to determine which will be the best fit for you. See below for basic explanations on both options (Home Buyer Tip: Check out our guide on Common Real Estate Terms)
Fixed Rate Mortgage: A stable loan, best suited for home buyers who intend to stay in a home until the mortgage is paid in full. The interest rate is slightly higher than that of an adjustable rate mortgage, but the trade-off is a more stable, predictable loan for the duration of your payment plan.
Adjustable Rate Mortgage: (ARM) This is a more attractive options for those who may sell within a few years of purchasing a home. Your rate will be lower upon signing, and may fluctuate based on general market rates. However, as you will be selling sooner rather than later, this will most likely not have a significant impact on your overall payment.
Now that I have a better grasp on mortgage basics, I’m ready to look into specifics, like interest rate quality, PMI and amortization
When it comes to determining the quality of your interest rate, your greatest resources will be your agent and your lender. It’s their job to make sure you make the best financial decision possible, and that means making sure you don’t pay more than absolutely needed for your loan.
What is PMI?
PMI stands for private mortgage insurance, which is suggested/required for down payments less than 20% of the purchase price of your home.
What is amortization schedule?
Your actual annual payment plan against your loan is known as amortization schedule. Much like other projected loan numbers mentioned in this article, there are plenty of great online calculators to help you determine your amortization rates!