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mortgage 101

Mortgages 101

So, you’re thinking of buying a house? Congratulations! Owning your own home is a huge accomplishment and something that should be cherished. 

However, buying a house is one of the biggest financial decisions anyone can make, so it’s important that you understand how mortgages work before jumping in headfirst.

In this blog post, we will teach you everything you need to know about mortgages so that you can make an informed decision and get into the home of your dreams!

So, what even is a mortgage? 

A mortgage is essentially a loan that you take out in order to buy a house. The lender will give you a certain amount of money (the principal) and you will agree to pay it back over time, plus interest.

 The interest is what makes the mortgage more expensive than just borrowing the money from a friend or family member. 

One of the biggest factors in getting a mortgage is how much you can afford to pay back each month. Your mortgage payment should not be more than 30% of your monthly income. This includes your principal, interest, taxes and insurance (PITI). You also need to have enough saved up for a down payment. The typical down payment is 20%, but there are programs available that will allow you to put down less.

Understanding mortgages is essential if you want to buy a house. 

You need to know what kind of loan is right for you, how much money you can afford to borrow and how long it will take before the bank starts charging interest on your loan.

It’s also important that we talk about APR (annual percentage rate), which is another way of saying interest rates per year.”

Saving for a mortgage

Can be difficult, but it’s definitely not impossible. 

The best way to save money for a mortgage is to create a budget and stick to it. Make sure you include your mortgage payment in your budget and factor in how much extra you will need each month. 

Another great way to save money is by taking advantage of government programs that offer tax breaks or help with down payments. 

If you’re still having trouble saving up for a down payment, there are companies that offer mortgages with no down payment required. 

So, now that you know everything about mortgages, what are you waiting for? Start saving today and get into the home of your dreams!

Steps for saving for a mortgage

1. Make a budget that includes your mortgage payments and start saving!

2. Take advantage of any government programs that offer tax breaks or help with the down payment. 

3. Consider taking out a no down payment required mortgage from a company like LendingTree . Now is the time to buy! 

4. Check out to compare mortgage rates from multiple lenders! We can help you find the best mortgage rate for your loan!

How to qualify for a mortgage

Now that you’ve learned everything there is to know about mortgages, it’s time to figure out if you can actually get one.

In order to get a mortgage, you need to meet the lender’s credit and income requirements. If you don’t, then you can still get a home loan through other programs that offer low-income mortgages or loans with no income and poor credit required.

Another thing to consider is your debt-to-income ratio (DTI). This is simply how much money you owe divided by your monthly take-home pay. 

You shouldn’t have a DTI higher than 36%, but it’s possible to qualify for a bigger mortgage with up to 46% DTI. If your debt is too high compared to your income, consider paying off some of those pesky debts before applying for a mortgage or getting one that requires no down payment.

Can I buy a house if I don’t make much money?

An FHA loan is one option that you can take advantage of if you’re struggling with your income. 

You won’t need to raise as large of a down payment compared to other loans, and the interest rates are also lower. 

Another option for people who don’t make much money is to get a low-income mortgage or purchase a home with someone else (like a family member) and share ownership.

Credit score needed to buy a house

You may need good credit to take out a mortgage, but there are programs available that you can qualify for if your credit isn’t so hot. 

One such program is called the Federal Housing Administration (FHA) loan and it’s designed for people with lower incomes, less cash on hand or bad credit. 

Another option is to get a no down payment required mortgage from companies like LendingTree . Even though you don’t have much saved up, our lenders will work with you so you can still purchase your dream home.”  

Different types of mortgages 

A step-down mortgage is a good option if you’re planning on selling your home in a few years and want to recoup some of your down payment. 

In order to qualify, the home will need to be worth at least 20% more than the loan amount. 

reverse mortgage is perfect for retirees who want to stay in their homes but don’t have enough money to cover the monthly costs. 

The best part is that there are no monthly payments and you can continue living in your home until you die or decide to move out.

simplified mortgage is a great option if you’re not interested in dealing with a ton of paperwork. 

This mortgage is perfect for first-time homeowners who don’t have a lot of money saved up and want to avoid dealing with a pre-payment penalty.

There are many different types of mortgages available on the market, so it’s important that you do your research before applying for one. 

Be sure to ask your lender about the different types of mortgages available and what would be the best fit for your specific situation.

Difference between a step down mortgage and a reverse mortgage

Interest only mortgages can also be an option if you want lower monthly payments. 

These loans are typically designed for people who plan to sell their home within a few years after buying it, so they can recoup some of the money they spent on the first part of the loan.

In order to qualify for interest only mortgages, you’ll need a credit score of at least 620 and total debt that’s no higher than 36% of your monthly income.”  

How do I find the best mortgage lenders?

After you’ve compared all the different types of mortgages out there, it’s time to start thinking about your search for a lender that will actually approve you. 

When looking for good mortgage companies, think about how long they’re been around and what kind of reviews their customers have left online.

How do mortgages work?

Before you purchase a house with a down payment of less than 20%, you’ll need to get mortgage insurance. 

This is required when you make a small down payment because it protects the lender (and yourself) if you end up missing payments or can’t sell the home for what’s owed.

How much do I need in savings to buy a home?

Typically, most lenders want you to have at least 5% of the total loan amount saved up before you apply for your loan. 

If this isn’t possible, don’t worry about it too much. There are many loans out there where all or some of the closing costs can be added into your monthly home payment.

What kind of mortgage should I get?

There are a lot of different mortgages to choose from, so it’s important you figure out which one is best for your needs and budget. 

Your first step towards finding the perfect home loan is deciding what type of mortgage you want. Here are the most common types:

• Fixed Rate Mortgage: This type of loan has a set interest rate that does not change throughout the life of the loan. 

• ARM (Adjustable Rate Mortgage): This type of loan starts with an initial or “teaser” rate for a certain period. 

• FHA Loan: This loan is designed for people with lower incomes, insufficient down payment or bad credit. 

• USDA Loan: This loan is only available to home buyers in eligible rural areas.

Three things to do before shopping for a mortgage

1) Figure out what you can afford.

2) Pay off or pay down debt before shopping for a mortgage.

3) Get your credit score above 660 on at least one major credit bureau. 

What happens if you can’t pay your mortgage?

If you don’t make your monthly mortgage payment (also called the “full monthly payment”), then your lender will likely begin the foreclosure process. 

If this happens, here are some things that might happen:

• Your loan servicer may call you about why you missed a payment. They may suggest ways for you to bring your account current or work with you on another solution.

• You could receive a 90 day notice in the mail if your payment is more than 30 days late. This notice may give you information about options which could help if you cannot pay your full bill right away, so be sure to read it carefully when you get it. 

• If payments continue to be more than 30 days late after the 90 day notice, your lender may start the foreclosure process by recording a Notice of Default.

Refinancing your mortgage

How to refinance your mortgage –

Consumer Information

The U.S. Department of Housing and Urban Development (HUD) insures mortgage loans as long as they meet certain requirements, such as: 

• The home is the borrower’s principal residence; 

• The total monthly debt does not exceed 43% of gross monthly income; and 

• The borrower has a good credit history with only one 30-day delinquency in the last 12 months and no other major derogatory credit issues (such as bankruptcy or foreclosure). 

Mortgagee Letter 2013-11 (Mortgage Insurance Premiums for FHA Streamline Refinance Loans)

If you want to refinance your mortgage , you’ll need to make sure that it makes financial sense for you. 

You can use the loan savings calculator on LendingTree’s website to help determine what size of a payment gap exists between your current mortgage and the new one. If the gap is large enough, refinancing may be worth it!

What are closing costs?

Closing costs are all of the fees associated with buying or refinancing a property. 

These include things like origination fee, appraisal fees, title search fee, attorney fees etc. 

Your lender should provide you with an estimate of these costs when you are applying for a loan. 

The costs can vary depending on the type of loan, the property value and whether or not you’re obtaining financing from your own funds or in some cases with seller financing.

What is an origination fee?

An origination fee is a flat fee that’s charged when you get a mortgage, usually 1% to 5% of the total loan amount. 

For example, if you borrow $200,000 to purchase your house, then your lender will likely receive somewhere between $2K-$10K in fees just for making that money available to you. The more money the bank makes available to you (i.e., larger loan amount), the larger their profit margin is going to be.

Difference between: Fixed vs. Variable Interest Rates

Fixed vs. Variable Interest Rates – Which Is Right for Me? 

Variable interest rates can change over time whereas a fixed rate does not change during the life of the loan. 

A Fixed Rate loan means that your monthly payment will remain unchanged throughout the term of your mortgage, even if interest rates rise or fall. 

On the other hand, a variable rate can go up or down at any given time without notice . This is what you need to know about choosing between a fixed-rate and adjustable-rate mortgage (ARM). 

What is a mortgage broker?

A mortgage broker is an independent professional that isn’t associated with any one specific bank or lending institution. 

Instead, they shop your loan around to several different lenders in order to find the most competitive deal for you. 

They also negotiate on your behalf when it comes time to sign all of the paperwork. 

Mortgage brokers can be extremely helpful in making sure you get a good deal on both your new mortgage and in refinancing an existing property in order to lower monthly payments or save money on interest rates . Their services are free, so it’s worth at least looking into what they have to offer.

Are there closing costs when buying my home? 

Typically Yes, there are typically closing fees which are paid at the closing (aka: closing table). 

These are fees that the lender charges to process your loan. 

When you apply for a mortgage, they will tell you what these are likely going to be when you are approved. 

Although it’s possible in some circumstances to negotiate getting them lowered or waived all together, don’t assume this is going to happen. 

They need to cover their costs after all! These fees can include everything from processing and underwriting fee, commitment fee, origination fee etc. The more money the bank makes available to you – the larger their profit margin is going to be. Just remember – always ask what you’re committing yourself too before signing on that dotted line!   

Getting a mortgage broker’s advice can help you save a lot of time and effort facilitating the process. 

For example, they may be aware of lenders that focus on first-time home buyers or individuals with less than perfect credit who provide them with better rates. 

Make sure to always ask for quotes from at least three different brokers before making your final decision. Also, don’t forget to ask how much you will have to pay – if anything – to use their services.  

Do I need to save for a down payment? 

This is one of the biggest questions people have when they are looking to purchase their first home. 

Although in some cases, not having a huge down payment can be an advantage in order to get approved for a mortgage more quickly and with potentially better interest rates. However, there are plenty that require borrowers to put at least 20% down in order to avoid private mortgage insurance (PMI). This figure largely depends on your credit history and can range from 0% to 25%.   

For the majority of lenders, you won’t see your down payment refunded back even if you use an FHA loan . In other words, this money will either go towards the purchase itself or the closing cost associated with buying a home.   

Why would I choose to use a mortgage broker? 

There are several reasons why you might go through the hassle of using a mortgage broker.  For one, they will take much of the headache out of shopping around for different rates and fees like origination fee s (something that can range from 1% to 3%), appraisal fee, processing fee etc. By talking to them early on in your search, they can narrow down what you qualify for and give you an estimate on closing costs . There’s nothing worse than finding out your lender wants $2,500 in fees right before signing your loan documents!  

Secondly, since brokers don’t “sell” you a mortgage, they are not motivated to find the cheapest rate for their own financial gain. Instead, they will be driven more so by finding the best fit for your specific situation . This means that you will have someone looking out for your interests rather than just trying to make money off of you.  

Do I need a real estate agent? 

Many first time home buyers think that because they’ve found the place of their dreams and applied for financing – it’s now time to call up a realtor and list their current property . Although this is typically common practice, there are several options available when it comes to selling your existing house such as hiring an auction company or paying off any outstanding liens (if possible) and having a vacant property.  Of course, it will ultimately be up to you as the homeowner to make this decision – but it should factor into your plans early on nevertheless.  

When should I start looking for a new home? 

In other words, this is the time to come up with a list of what you’re looking for in terms of location, number of bedrooms/bathrooms etc. In order to get the best value out of your money, try factoring in costs such as transportation (i.e., how far are you from work/school?) or amenities that can save time and money . For example, if you live close to a mall – perhaps it wouldn’t be necessary to drive 30 minutes to visit one or be able to walk there in a short period of time.    

How much can I afford?

This largely depends on what you’re willing and able to pay each month as well as how much rent is currently being charged.  In order to determine this, it’s important that you first figure out your debt-to-income ratio (DTI) which will help lenders evaluate whether or not you can qualify for the type of mortgage (i.e., conventional vs FHA) and interest rates they may offer based on different credit scores . Unfortunately, this number isn’t something that brokers typically tell their customers but rather something you need to inquire about yourself. Keep in mind though that this number typically ranges from 28% to 36% – however, it can be lower if your credit score is higher.  This means that for every $100 you earn a month, roughly $28 – 36 should be used for debt repayment which includes the mortgage payment as well as other monthly expenses such as gas/electricity and groceries.

Ready to start applying?  

Now that you’re all set with an idea on how much house you can afford and what criteria needs to be met in terms of location, neighborhood etc., it’s time to apply. This entails filling out any necessary forms (typically provided by your real estate agent) plus gathering documents such as pay stubs (which need to reflect two years’ worth of tax returns), last two years’ W2s, investment/retirement account info and bank statements.  In addition, your broker will require a copy of your credit report in order to determine what type of rate you qualify for (i.e., prime vs. sub-prime).  

Finally – most importantly, don’t forget to ask about what additional fees you need to pay for such as application fee s or commitment fee . Just like any other business transaction, this is very important information that should not be overlooked! 

If you’re looking into buying a home anytime soon then it’s best if you get familiar with the basics of mortgages early on so that everything runs smoothly when it time to closing .   Although there’s a lot of paperwork involved, it can be a very rewarding experience and one that will hopefully lead to further financial security. If you take the time now to prepare for buying a house, you’ll have a much higher chance of being successful!

Are you interested in getting a mortgage? If so, start planning early – even before you buy. This way, all your ducks will be in a row once it comes time to apply for financing.

What is realtor commission? When selling your home – one question that may pop up is whether or not you need to hire an expensive (and sometimes, pushy) real estate agent . The answer is that it depends on what state you live in and whether or not the house has been recently built.  In addition, this also depends on what your home’s purchase price is – because if it falls below a certain amount (i.e., $500k in California), you usually don’t need to pay for agents’ services.

Make sure to ask whoever is representing you!

The bottom line is that when it comes to selling your property , there’s a good chance you’ll be able to do so without such costly fees. However, keep in mind that even though hiring an agent will cost more initially, they can save money in the long run because they’re knowledgeable about the housing market. Having an agent represent your interests is also advantageous because they have access to more listings plus they can handle most of the paperwork for you.

Ready to start selling? 

Whether or not you decide to hire an agent, it’s important that all of your ducks are in a row before listing your house . This includes deciding on what price you want to ask , getting rid of clutter and being patient since buyers will take their time during this process. If there are repairs that need to be done, make sure to mention these as well.   Decorating (and de-cluttering) is something you should consider as well – after all, first impressions matter! And finally, possible try not to move out or list your house for sale at a time when the housing market isn’t too hot.

You may come across this question during the process of selling your home: “Do I need to hire a real estate agent?” Depending where you live (and what type of property it is), the answer might be no – but if not, then hiring someone who will help sell your house quickly and smoothly is well worth it! The bottom line is that an agent can help increase profits by making sure that your house looks appealing to potential buyers. For more information on how much you’ll have to pay, please visit the article’s official website by clicking here .

If there are any other questions regarding mortgages that are making you nervous, this is the best time to brush up on these topics so that when it comes down to actually applying for one , everything will go smoothly. And if that’s still not enough, then taking advantage of online tools such as mortgage calculators can also help ease some during this process.  The more you know going in, the better.

Now that you understand a little more about what mortgages are and how to prepare for buying a home, hopefully this will give you the confidence boost you need to start your house hunt! Buying a home is one of the most important decisions that you’ll make in your life, so it’s best to do your research and arm yourself with as much information as possible. Stay tuned for the next installment of this series, which will focus on what you need to do once you’ve found the house of your dreams.

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