Your First Mortgage - What to Expect

Are you applying for your first mortgage? Buying a home can be scary, and getting a mortgage can be confusing. If you are buying your first home, make sure that you understand the following facts about mortgages. Know what to expect going into the deal and you’ll be much more prepared to deal with costs and other issues.

First, when you apply for a mortgage, you’ll likely get pre-approved for a certain amount. This gives you a starting point. You’ll know your price range when you look at houses and you’ll have an idea of the closing costs and interest rate you’ll be paying. The mortgage lender will give you this information as a Good Faith Estimate. Those figures will be good for a limited amount of time, but when you really do find a home and apply for the mortgage, the rates shouldn’t change much.

After you get pre-approved for a mortgage, you should begin house hunting. During this time, you should be savings up for your down payment, as well as for closing costs. In most cases, a mortgage lender will want you to have about 20% of the total cost to put up as a down payment. If you have less than that, you will probably still be able to get a mortgage as long as you have decent credit. However, if you have less than 20% to put down, your mortgage lender may require you to purchase private mortgage insurance until you have the full 20% paid off. This is an extra expense for which you must be prepared.

Speaking of extra expenses, don’t forget to plan for closing costs. Most people don’t realize that the process of getting a mortgage can be extremely expensive. It is important that you are prepared to deal with all closing costs, which usually, in total, run about $3000 to $6000 depending on your mortgage situation and where you live. You can add these to the originally mortgage, but if you do so, you’ll have to pay more in interest, so it is always a good idea to try to pay them off right away. Included in closing costs are fees for appraisal, underwriting, long distance calling, traveling, document preparation, title insurance, title transfer, lawyers (if needed), survey, and more.

After negotiating with a seller over the price of the house, it is time for you to get approved for the mortgage. During this time, you deal with be in escrow, with an escrow company holding your down payment. The mortgage company with which you apply will look at all of your information, including your debt to income ratio and your credit score, and offer you an interest rate on the mortgage loan that you’d need to purchase the house. They’ll also go over additional costs with you (like the closing costs), as well as fees you’ll be required to pay if you do things like miss payments or pay off the mortgage extremely early. On top of that, you and your mortgage lender will have to talk about the mortgage term - the length of time it will take you to repay the mortgage. In general, a longer term means lower monthly payments, but a short term means a lower interest rate.

You’ll also be able to talk to your mortgage lender about paying for points. Points are set amounts of money you can pay to lower your interest rate by one percent. There may be a limit as to how many points you can purchase, but in most cases, you’ll want to pay for one or two points at least, if you have the money.

With your mortgage, you’ll also become aware that not all mortgage rates are created equally. In most cases, you’ll be offered and adjustable interest rate, with caps as to how high it can jump in a year and over the life of the loan. As the national rate changes, so will your interest rate. However, on the other hand, you might also opt for a fixed interest rate. This might not be offered right away, but if you refinance your mortgage, you can often get the fixed interest rate.

Getting your first mortgage is tough. The process is long, and it is easy to get confused if you’ve never done it before. However, with a good real estate agent and mortgage lenders on your side, you should be able to figure out the best mortgage option for you. Make sure you do your research, and you’ll be able to get a mortgage that makes sense for your situation.

By: Brian Jenkins

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