As a first-time homebuyer, most people don’t have the money in savings to cover the entire cost of a new home. So, like most homebuyers, you will need to take out a mortgage.
Mortgage loans can be tricky to comprehend if you’ve never dealt with them before. The following is a guide to help first-time homebuyers understand what mortgages are and what it takes to be approved for one.
When you take out a mortgage, you’re taking out a loan to pay for the house. The lender will cover the cost of the house, which you will pay back on a monthly basis plus interest. However, there is a little more to it than that.
The following are some of the important elements of a home mortgage loan that heavily affect how much you will pay every month as well as over time:
Lenders will require you to pay for part of the home’s cost up front. This is known as the down payment. The lender will then cover the rest of the home’s cost with the mortgage. Al-Gar FCU requires a 20% downpayment.
The size of the down payment that you’re able to pay will have a big impact on several different aspects of your loan, which include the following:
The more money you’re able to put down, the less you’ll have to pay each month. Because of this very fact, many first-time homeowners will try to save up as much money as possible for their down payment so it’s less of a burden over time.
Most people understand that the lower your interest rate is, the better it is for you. However, there are several types of interest rates that can affect how much money you end up paying over time. The following are the two main types of interest rates:
A fixed rate will never change. This can make it a lot easier for homeowners to budget since they will know exactly what they owe every month for the life of the loan.
For first-time homebuyers, trying to determine whether a shorter loan length or a longer loan length benefits them most can be a bit difficult. Al-Gar FCU offers a 10-year, 15-year, and 20-year mortgage.
The following are some considerations you’ll want to make:
The longer it takes you to pay off your mortgage, the more money you’ll end up having to pay in interest when it’s all said and done. This means that you’ll end up paying much less if you choose a 10-year loan versus if you choose a 20-year loan.
The flipside to choosing a shorter loan is that you will end up having to pay what can be a significantly higher amount of your loan back every month. Some people simply can’t afford to do that and choose longer loans so that their monthly mortgage payments are less expensive – even if they end up paying more over the long term.
It’s a real hassle for a lender to deal with a borrower who defaults on their mortgage. They’ll have to spend months trying to chase down payments before being able to foreclose on the property.
After that happens, the lender will have to sell the house on auction and then file a claim with their insurance payer (assuming the buyer had mortgage insurance) to cover any losses.
This costs money and time, which is why lenders tend to be vigilant about who they approve for a home mortgage. The following are some of the factors they will look at to determine if you qualify:
Your credit score is a good indicator of your current financial health. A poor score indicates that you are having trouble with your current financial obligations.
Your credit history shows lenders if you’re financially responsible. If you have a history of missing payments, they’ll flag you as a potential risk.
Lenders prefer that you have at least two years under your belt with your current job. This shows job stability, which means that you can depend on regular income to make your mortgage payments.
They want to make sure that you’ll be able to afford mortgage payments by looking at how much you owe versus what you make.
The ability to put down a large down payment can help offset a few blemishes on your credit history or an average debt-to-income ratio.
These are the basics that every first-time homebuyer should know about getting a mortgage. For more information about applying for a home mortgage or for help finding a home mortgage loan that suits your needs, be sure to contact us at Al-Gar FCU today.