What is a mortgage? A mortgage is the loan you get from the bank to purchase your home. Every month you make a mortgage payment because the house is not fully yours yet. The bank hangs on to your house as collateral until the loan is paid in full. In addition to knowing the definition, it’s important to know how a mortgage works before you buy a house.
How to Get Preapproved
Before you look for a house, you will need to get preapproved for a mortgage loan. Preapproval is where the bank has looked at your debts, credit score, and income and know that you’re a good candidate to lend money to because you have a good history of paying back your debts. If you have a low credit score, your chances of getting preapproved are not very high. Banks want clients who will pay them back, regularly and on time, which is why it’s important to make sure you have a good credit score before buying a home.
The Different Types of Loans
Prospective home buyers can often choose different interest rates based on the closing costs. There are two different kinds of loans which are the fixed rate mortgage and the adjustable rate mortgage. The fixed rate mortgage has a fixed interest rate that doesn’t change over the course of the loan. This can be a good thing because you will always know what your interest rate will be. The adjustable rate mortgage changes depending on the market, which means it could decrease from what you start with. This means that you might save money over time, but it’s not guaranteed.
Shop Within Your Budget
After you have been preapproved and have determined what type of loan you wish to get, you can start looking for a house, but it is important to remember to look for a house within your budget. You need to be able to pay 20% of the house’s total payment as a down payment in order to be determined for the loan. If you buy over that, you may have to pay an additional fee known as the private mortgage insurance (PMI).
Buying a house can be exciting, but it’s important to know what a mortgage is, how to get preapproved and what kinds of mortgage loans there are before you start shopping within your budget.
Once you get a home, you’ll need a good homeowners’ insurance policy. Get a quote by applying here!