A recent survey indicated 74% of renters want to buy a home but are worried they won’t qualify for a loan, so they don’t even try.
Don’t fall into that trap!
If you’re thinking about your first mortgage, know that home ownership is not out of reach, even if you don’t have much money for a down payment or if your credit isn’t perfect.
Of course, just because it’s possible doesn’t mean it isn’t sometimes confusing. That’s why we’ve created this guide to everything you need to know about mortgages.
Read on, and you’ll be in your first home before you know it.
Five Common First-Time Buyer Questions
How Does a Mortgage Work?
A mortgage is a loan given by a financial institution to a buyer to purchase a property. It’s secured using the property as collateral. This means the lender can take back the property if payments are not made.
The buyer agrees to make payments for that property, including interest. When you make a payment on a mortgage, part of it goes to the principal (the amount owed), and the rest goes toward the interest on the loan.
At first, most of your payments will go toward interest because the principal is still very high. However, payments toward the principal build equity (the amount of the home you own).
Eventually, most of your payments will go toward the principal. Once it’s paid off, you’ll own the home free and clear.
What’s the Difference Between Fixed and Adjustable Mortgages?
There are different types of mortgages, including fixed and adjustable mortgages.
A fixed-interest mortgage means that a buyer pays the same amount of interest across the life of the loan (usually 15 or 30 years). Simply put, the monthly payments stay the same for the entire mortgage.
An adjustable-rate mortgage is one in which the interest rate stays the same for an initial term but then changes with the market interest rate. At first, the interest rate will be below market, but it may increase thereafter.
What Are the 3 Cs?
You may have heard of the 3 Cs when it comes to mortgages, but maybe you aren’t sure exactly what they stand for.
- Credit: Your credit score provides lenders with your history of managing credit. The higher the score, the better the terms of your loan, but there are programs to help those with less-than-perfect credit.
- Capacity: This is your ability to repay your mortgage. Lenders determine this by reviewing your earnings history. They want to see that you have sufficient income and a low debt-to-income ratio.
- Collateral: This is the money you have available for a down payment and closing costs. At a minimum, lenders want to know that you have the money to pay for the closing costs.
What Should I Do Before Applying For My First Mortgage?
Before applying for a mortgage, there are several things you can do to get the best rate possible.
One way is to work on boosting your credit score. Check your score and look for any discrepancies. If you find one and dispute it, then your score will improve.
Another way to boost your score and improve your chances of getting a good rate is to pay down as much debt as possible. This will lower your debt-to-income ratio.
When Should I Apply For a Mortgage?
Many people don’t realize this, but the time to apply for a mortgage is before you start looking for houses.
Prior to starting shopping, you’ll want to get pre-approved for a mortgage. This way, you’ll know what price range you can afford and you’ll be ready to make an offer if you find your dream home.
Are You Ready to Take the Next Step?
Now that you understand a bit more about getting your first mortgage, you may be ready to go. One of the best things buyers can do is work with a loan professional.
Mortgage brokers can help guide you through the process and get you the best rate available. At 7th Level Mortgage, we work to get you a competitive rate, and we can help you resolve a variety of problems, such as bad credit and bankruptcy.
Contact us today for more information and loan advice. There’s no cost and no obligation!
We at 7th Level Mortgage are an experienced team of mortgage professionals based out of New Jersey and serving the east coast from Pennsylvania to Florida including Delaware and Maryland. We have won numerous awards for our excellent professional work and reputation with clients for being extremely diligent, accessible and hands-on throughout the entire mortgage process.