When you buy a home, you may need to take out a mortgage. This is often the most significant monetary decision in most people’s lives, so learning everything you can about mortgages can help you make an informed decision.
How Does It Work?
When you sign a mortgage, you are borrowing money from a lender so that you can buy your home. In turn, you agree to repay that amount, in monthly installments, over a preset period.
What Does Your Monthly Mortgage Payment Include?
Your monthly mortgage payment is determined by applying the interest rate to the principal amount of your loan and then spreading what you owe out over the repayment period.
Applying for A Home Loan
When looking for a mortgage, your first step should be to research lenders to see who offers the best rates. A decent credit score will help you get the best possible rate when applying for a loan.
The interest rate on a mortgage can be fixed or adjustable. If it’s fixed, you’ll pay the same rate over the life of your loan. If it’s adjustable, that rate can change over time. Although the interest rate on an adjustable-rate mortgage can go up, it sometimes goes down as well. But if you want to know what rate you’ll be paying throughout the life of your loan and don’t want any surprises, a fixed-rate mortgage is a good choice.
Here’s a List of Things You’ll Need to Secure a Mortgage
– Good credit: Your credit score can range from 300 to 850, with 670 or above being a good score. If your score isn’t great, it pays to raise it before applying for a mortgage.
– A low debt-to-income ratio: A debt-to-income ratio tells you how much debt you have in relation to your monthly earnings. Ideally, you want this number to be 36% or lower.
– A down payment: You’ll need to put some money down when you buy a house. If you take out a conventional loan, you’ll need to make a 20% down payment.
What Are Closing Costs?
When you close on a mortgage, you’re liable for certain fees. These fees, which typically equal about 2% to 5% of the value of your loan, are called closing costs.
