Mortgage loans are usually used to purchase a house or to secure the money you owe on an existing property. However, there are different types of mortgage available in today’s market and knowing the basics of mortgage loans may help you choose the right one. Here are seven things to look out for when you’re applying for a mortgage.
The size of the mortgage loan. The most important factor is the total amount you’ll borrow, including any closing costs or fees. The biggest lenders require the largest down payment and closing cost. The other factors that go into your quote are interest rates, fees, and the term of the loan. Find out how much you’ll be paying in interest over the life of the loan, and calculate if it’s reasonable or not. Most lenders require at least 3% down, but many also require a closing fee that could amount to several hundred dollars.
The mortgage terms. Lenders have plenty of choices when it comes to mortgage terms. The mortgage is a contract between you and the lender. You agree to pay the lender a specific amount monthly for a certain period of time. You can choose fixed interest rates over an adjustable rate plan, and some mortgages include other charges like home inspection fees or private mortgage insurance.
The fees and closing costs. Some mortgage loans include closing costs and fees as a part of the loan price. Other lenders charge a separate fee for this. Determine if you’ll need this fee before you apply for a mortgage.
The value of your collateral. If your credit rating isn’t perfect, or you don’t own a huge house, you may get turned down for traditional mortgages. There are no second mortgages available for these kinds of loans, so you will likely need the money upfront to purchase your new property.
Interest only versus interest-only. Most borrowers choose interest-only mortgages to cut down on their monthly repayments. Interest only reduces the amount of your initial loan by only paying the initial interest for a specified number of months. This allows you to pay off the mortgage more quickly, while keeping your initial loan under control.
Choose a flexible repayment term. Choose a mortgage that lets you make large payments over a longer period of time. You may need to borrow more money over time as your monthly expenses rise. A longer repayment term gives you more time to plan for your finances. However, keep in mind that you may end up paying more in the long run, since you will have borrowed more money over this period of time.
Compare the cost of various closing costs. Some fees can tack onto the mortgage closing costs. Others, such as appraisal fees, will be applied at the time of closing. Find out what these fees are before you buy your new home. The total closing costs you pay can vary dramatically depending on the lender and the loan amount. Find out what you can afford and then shop for a loan that has the lowest closing costs.
A low debt-to-income ratio is important when buying a new home. This ratio tells lenders that your income will be sufficient to repay the mortgage without risking default. The higher the debt-to-income ratio, the greater the risk of lending money to a borrower. To learn more about your mortgage options, register for a free mortgage guidebook.