Mortgages For First-Time Homebuyers
Mortgages are long-term loans used to buy homes or other types of real estate, with the property serving as collateral. Homebuyers typically make a down payment of at least 20% of the property’s total cost, and they must then pay monthly principal and interest payments until the loan is repaid in full. The terms of a mortgage can vary widely, but lenders must adhere to strict requirements and go through an underwriting process before an applicant is approved for the loan.
A mortgage can be one of the largest financial obligations most people will assume in their lifetimes, and it is often confusing for first-time homebuyers. The terms of a mortgage, which can include property taxes and homeowners insurance, are typically disclosed in a loan estimate that is sent to the borrower upon approval of the loan. The loan estimate contains the loan principal, interest rate, upfront mortgage expenses and other fees, such as a lender origination fee and title insurance.
Mortgage rates are subject to change based on market conditions, so it is important for borrowers to compare mortgage offers from several lenders. Borrowers should also take into account the amount of money required to pay closing costs and other prepaid items, which are typically 3 to 5 percent of the loan principal.
Before you apply for a mortgage, it is important to get your credit score and credit report into the best possible shape. The higher your credit score, the better chance you have of getting a lower interest rate and lower monthly mortgage payments. Mortgage lenders also check your credit report to verify that the information you provide on your application is accurate.
There are many different kinds of mortgages, but the most common ones are conforming conventional, jumbo and FHA loans. To qualify for a conforming conventional or jumbo mortgage, borrowers must meet certain requirements, including a minimum credit score and a down payment of at least 20 percent of the total price of the home or other real estate purchased. Mortgages are available from banks, savings and loan associations, credit unions, online lenders and other sources.
A mortgage can be one of most expensive purchases a person will make in their lifetime, so it is crucial to compare offers from multiple lenders before making a decision. Borrowers should consider the type of mortgage, term and interest rate when comparing offers. A lowering interest rate can significantly reduce the overall cost of a mortgage, so it is worth considering if the financial benefits outweigh the risks.
There are several ways to pay for a mortgage, but the most common is to have your monthly mortgage payment cover principal, interest, property taxes and homeowners insurance. This is called PITI, and it is commonly referred to as the “four Cs.” In addition, your lender may require that you carry homeowners insurance in order to protect its investment in the property. Homeowners insurance usually includes coverage for fire, flood and other natural disasters, as well as liability protection. In most cases, your lender will collect the premiums associated with homeowner’s insurance as part of your monthly mortgage payment, hold them in escrow and pay the insurance provider on your behalf when the insurance is due.