Buying a home or property is one of the key milestones in our lives.
More than not, people, especially novice buyers don’t have the exact resources to afford their dream home. This is the perfect opportunity they should take to familiarize themselves with mortgages.
Here are some of the most important aspects of what it takes to get a mortgage, and all the important terminology, so you could get a better grasp of how to navigate it.
Mortgage, In Short
In the simplest of terms, a mortgage is a loan that a person can take out to buy either property or land (or both). It’s essentially a financial transaction regulated by the government, where you make a sort of a promise with official documents that you will repay a debt that you got as a loan in the first place.
They are usually seen as a huge inconvenience, however, a mortgage can help you buy the house of your dreams for yourself and your family. Getting a mortgage requires a lot of preparation since it’s a big financial undertaking.
Not every mortgage is the same because different people need different types of mortgages for different reasons, however, there are options for everyone. This includes borrowers who have a very low income, and also the people who are planning on buying a mega-mansion.
As we’ve mentioned before, getting a mortgage is a process that has many parts to it so without further ado let’s discuss everything you need to know about them.
One of the most familiar terms to novice borrowers is the mortgage rates. A mortgage rate refers to the interest that is charged on a mortgage loan. They are quite tricky to follow as they are constantly changing depending on the state the market is in.
These ever-changing market conditions include aspects such as the state of the housing market specifically, the federal monetary policy, and the economy. In addition to this, an aspect that can make you break your mortgage rates the most is your current financial state.
A low mortgage rate means that your total loan will be much cheaper, which is of interest to every borrower. There are many ways to have a better financial profile that will guarantee this. Aspects like a high credit score, low debt, and hefty down payment will all do the trick.
In addition to this, some home loans are inherently cheaper such as the FHA, VA, and USDA home loans. Another way to ensure you get the best rate possible is to pay attention to the housing market, as its cyclical movement means you can find the best time to get a loan.
In addition to mortgage rates, mortgage points are another very important term you should familiarize yourself with. Mortgage points are another way to lower your interest rate and APR. APR stands for annual percentage rate and is the total cost of the mortgage with interests, closing costs, and all the other fees included.
One mortgage point represents 1% of the loan amount, and with every purchased mortgage point, the lower your rate will be. This can pay off tremendously in the long run.
Mortgage points are a part of the contract, and they are offered upfront. As the experts at ExpertMortgageAdvisor.co.uk suggest, it is essential to read the contract thoroughly to ensure the quotes you get from other lenders don’t include these points in the interest quote.
If you’re unsure how much you can save up using the mortgage points, you should ask a mortgage consultant to calculate it for you and give you key pointers on how to proceed.
How to Apply
Applying for a mortgage can be divided into two most important steps. The first step involves working out how much you can afford, and under that, what kind of mortgage will work best for you.
The second step is where the evidence of income needs to be presented, and also a more detailed affordability check is conducted. The application process is one of the key aspects of mortgages you should know if you plan on getting one.
During the first step, you will talk out the kind of mortgage you want with a mortgage broker, and for how long you want it. In addition to this, they will discuss your financial situation too, and you should also get key information about the entire service.
The second step is where the application process starts. This is where a mortgage broker will assess the impact on your repayment. If your application gets accepted, the lender will give you a “binding offer”.
Types of Mortgage
In addition to all the previous aspects of mortgages, this is also the one you need to know, so you could get the best offer possible. Generally speaking, there are two types of mortgages.
The first type is a mortgage with a fixed interest rate, and the second one is a mortgage with a variable interest rate. A mortgage with a fixed interest rate means that all of your repayments will be the same amount for a certain time (usually from two to five years).
A mortgage rate with a variable interest rate means that the rate you pay could move either up or down, depending on the wider market.
There are many types of variable-rate mortgages, and the best way to figure out which one will best suit your needs if you’re going for this option is to get professional advice from a mortgage advisor. This will ensure you don’t end up spending more money than you have to.
Getting a mortgage is usually thought of as a huge headache because of all the aspects that you need to have to qualify for it, and because of all the terminology that may seem complicated at first. However, getting a mortgage is a pretty straightforward process to be understood once you get a hang of it.
There’s always an option of hiring a mortgage advisor to better help you with the whole process, and ensure you get the best deal that you possibly can.