Making the decision to buy a house is exciting, whether it’s a starter home or where you’ll spend your relaxing days in retirement. However, before you can start picking out paint colors and new furniture, you have think about how you’re going to afford it. In order to get started, you will need to meet with a mortgage lender. And in preparation for your appointment, there is some important mortgage information you should think about before signing the dotted line.
The Down Payment
Knowing how much you have for a down payment is the piece of mortgage information that will set the stage for the whole process. The down payment is the money that you give to your mortgage lender to secure the financing for your home. It is often expressed as a percentage of the home’s cost, and mortgage lenders typically like to see 20% of the total cost down. If you put down anything less than 20%, you will most likely need to purchase mortgage insurance (more on this below).
Next, you will need to determine the mortgage payment you can afford on a monthly basis. Be sure to look at all of your finances, from credit card bills and loan payments to your cost of gas and food. If you need some assistance, use a mortgage calculator to help you with the numbers. Pro tip: If you make a higher down payment, you will reduce your monthly mortgage payments.
Types of Mortgages
Familiarize yourself with the different types of mortgages; which include fixed rate or adjustable rate. A fixed rate mortgage means that your interest rate will be the same rate for the entire duration of the mortgage. With an adjustable rate (or variable rate) mortgage, your interest rate can fluctuate throughout the duration of your mortgage based on the market. If you are unsure about which to choose, speak with a trusted lender to help you decide which option is best for you.
As previously mentioned, if you put less than 20% down on your mortgage, you will most likely need to get private mortgage insurance. Private Mortgage Insurance (PMI) is added to your monthly mortgage payment and is paid to your lender until you reach the 20% down payment mark. Once this amount is reached, your PMI payments will be removed from your monthly mortgage payments.
Educating yourself on this mortgage information before applying for a mortgage is an important step in easing the home-buying process. As long as you do your research and make yourself knowledgeable, you’ll be ahead of the game. For more information about mortgages and your options, download our whitepaper now!