Mortgages: Everything You Need to Know
What is a mortgage?
A home or property loan is a type of secured loan you use to purchase or refinance a home. Lenders will ask for a down payment. The down payment can be as little as 3–3.5% of the total cost of a home, depending on the type of loan. In exchange, you'll receive a deed to the property and agree to pay back the loan in monthly installments plus interest over a period of 15 to 30 years.
Types of mortgage loans
There are two main types of mortgage loans:
- Fixed-rate mortgages: Have an interest rate that stays the same during the life of the loan.
- Adjustable-rate mortgages (ARMs): Have an interest rate that can change over time.
Government-backed loans
These loans are backed by the federal government and have more flexible eligibility requirements and competitive interest rates. Here are the four main types of government-backed loans:
- Federal Housing Administration (FHA) loans
- Veterans Administration (VA) loans
- U.S. Department of Agriculture (USDA) loans
- Fannie Mae and Freddie Mac loans
How to qualify for a mortgage
Mortgage lenders will look at your credit score, income, and debt-to-income ratio to see if you qualify for a loan. You'll need a good credit score (typically 620 or higher) and a low debt-to-income ratio (typically 36% or lower). You'll also need to provide documentation of your income.
How to get a mortgage
To get a mortgage, you'll need to follow these steps:
- Get pre-approved for a loan.
- Find a home and make an offer.
- Get an appraisal of the home.
- Complete the mortgage application.
- Attend a loan closing.
Conclusion
Mortgages are a complex financial product, but they can be a great way to finance the purchase of a home. By understanding how mortgages work and how to qualify for one, you can increase your chances of getting a loan and buying your dream home.
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