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    Mortgages Aren’t Scary! 5 Mortgage Tips For The First-Time Homebuyer

    “Mortgage” may sound like a scary word to many people, but actually, it’s an amazing benefit: it’s the thing that enables the majority of people to buy a house! If you’ve always wanted to own a home of your own, mortgages are something that you’re going to want to learn about. When you know the facts, you’re in a better position to get the right mortgage for your needs. Owning a home can be an amazing experience. However, along with the rewards there are also some risks, and you should go into homeownership prepared and armed with the right facts. Read on to learn more about mortgages: what they are, how to get the right one for your needs, and more!

    1. Understand What a Mortgage Is and How to Get One

    Most of us aren’t billionaires, so we can’t go out and purchase an entire house with our pocket change! That’s where a mortgage comes in. A mortgage is simply a loan that allows you to continually pay off your house, month by month, over a period of several years. Usually, with a mortgage, you will pay a down payment and then pay off the rest with affordable monthly payments over the next 15 or 30 years.

    Shopping for a mortgage is a little different than going to your local Super Target and buying some groceries—you have to go to lenders, give them information about your finances and the property you want to buy, apply for the mortgage, and wait to find out how big of a loan they’re willing to give you. You can go to a local bank or credit union, or you can use an online lender. But there are some steps you should take before you go to a lender: figuring out your finances and understanding what you can afford.

    2. Figure Out Your Credit Score and Financial History: Is It In Good Shape?

    Before you go to any lenders, make sure you’re aware of your past and current financial information. Your mortgage lender will use this key information to decide what mortgage rate to give you. In a nutshell, if you have a steady income, a good credit score, not too much debt, and you seem like the type of person who would be able to pay back a loan, then you’ll get a better (cheaper) mortgage rate. You’ll save over the long term.

    However, if the lender is concerned that you’ll have trouble paying off the loan, then they will actually charge you more because you’re more of a risk for them. If they don’t like what they see when they look at your income, your credit score, and your debt levels, they might even deny you a loan. If your credit score and finances aren’t in great shape, you may want to consider holding off on applying for a mortgage while you focus on raising your score.

    3. Understand What You Can Truly Afford

    You might be tempted to buy a house at the top of your price range, but don’t stretch yourself: If you end up being unable to pay your mortgage each month, there are serious consequences. Financial hardships can happen. Your lender can even repossess (or take back) your home if worse comes to worst and you stop paying your mortgage. Of course, you definitely don’t want that to happen!

    So, you’ll need to take some time to understand what you can truly afford: this includes the mortgage payment each month in addition to bills, taxes, utilities, insurance, maintenance, and any other expenses that come up as a homeowner. Plus, don’t forget the down payment! The traditional down payment is 20%, though some mortgages require more than 20% and others allow for less. Make sure to give yourself some wiggle room and have some savings for the events that unexpected expenses occur or your income is reduced in the future.

    4. Learn About the Different Types of Mortgages

    While all mortgages accomplish the same goal—allowing you to afford a house!—not all mortgages work the same. There might be one type that works better for your needs than others. When you apply for a mortgage, generally, you can choose between the following types of mortgages:

    •Fixed rate mortgages—the most common choice, with an interest rate that remains the same throughout the entire life of the loan (usually 15 or 30 years)

    •Adjustable rate mortgages—a loan that provides a lower fixed interest rate for the first few years, then variable rates that go up or down annually based on current interest rates for the rest of the life of the loan

    •FHA loans—a mortgage that allows you to make a lower down payment (as low as 3.5%) and also allows for a lower credit score; usually used by homebuyers who cannot afford a traditional down payment

    •VA loan—a mortgage available only to veterans, active duty personnel, and other military members and spouses; allows for a lower down payment and lower credit score

    The type of mortgage that’s best for you depends on your specific needs. A trusted lender should be able to help you choose the best type of mortgage!

    5. Find a Trusted Lender (Online or Locally)

    These days, it’s easier than ever to find a lender. Whether you decide to go with a trustworthy online lender or a local bank/credit union, it’s important that you find a lender you are comfortable with.

    Many homeowners talk to more than one lender when shopping for a mortgage. That way, they can compare the fees and rates from one lender to the next. Small differences in rates can really add up over the 30-year mortgage period, so shopping smart will make a difference over time.

    Each lender that you apply to will give you a GFE document—a good faith estimate—that will allow you to compare its rates and fees to other lenders. It’s a good idea to apply to at least two lenders and choose the best scenario for your needs, whether you’d prefer a lower interest rate or lower closing costs. But don’t apply with too many lenders when shopping for a home loan: it can lower your credit score.

    It’s always helpful to get expert information that is tailored to your situation since everyone has different situations and needs when it comes to buying a home. You can learn more at RefiGuide.org today.

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