When it comes to purchasing a home, one of the most terrifying aspects of the process is getting a mortgage to purchase the home. The home really is not the largest purchase one makes in one’s lifetime, it is really the mortgage, which is paid off over several years with a ton of interest paid to the lender. It can be intimidating to anyone to commit so many of their future earnings to one one product.
Unless you are flush with cash, you have to get the mortgage, however, in order to become a homeowner. As with everything else in life, stressful situations ease a bit if you go prepared and educated about the situation. Mortgages come in several favors from ARM conventional loans to 203 (K) FHA Rehab Loans. Before you can really make an educated decision on the type of mortgage you want for the purchase of your home, you need to learn the trade lingo. Some of the jargon used by mortgage industry is baffling to even the most seasoned home buyers. We have found some sites to help you understand the mortgage basics.
It is also a good idea to check your financial health before going through loan application process. Most experts agree that you housing costs should only make up 35 % of your monthly expenses. Do a review of your income and expenses before getting too deep in the house hunting process. There is few things more disheartening than finding out you can’t afford the home of your dreams.
What is your debt level? If you have credit card debt or student loans, you might have too much debt in relation to your income to qualify for a mortgage. If you have debt at 38% or more of your income, you will have a more difficult time finding a lender. There are some programs that allow a higher debt ration, so you should shop around to find lenders allowing for the higher limits. We have found one site that makes this easier than most to find a great lender and their programs.
You also have to think about your credit score. If you have some bad marks on your credit report that has driven down your score, you might want to wait to pursue a mortgage until you get the score higher. You can get a better interest rate and have a lot more options when it comes to programs if your credit score is higher.
Finally, you should always remember that a mortgage payment will include your insurance and tax payments (in some states). You might get a loan from a lender for $100,000 that requires you pay $600 a month. However, your payment to the mortgage company is going to be higher, probably in the range of $1000 to $1100 a month. The mortgage company will put the extra money into an escrow account and pay your property taxes as well as your home insurance provider. It might seem absurd for them to pay these bills for you, but the mortgage company wants to protect their investment by making sure you pay your taxes and keep the house insured from disasters. It can do this by paying these two bills for you.
Without further ado, here are some sites that will help you to understand the basics of the mortgage landscape. Learn and enjoy!
Realtor.com Mortgage 101 – The first task for any home buyer is to know all about mortgages. There are plenty of sites that teach you the basics. Our favorite is Realtor.com’s Mortgage 101 site. It covers a wide range of material on mortgages from the basics to credit review to home loan programs. Each section of the website has a video along with text to teach a lesson on mortgages. One of the fun features of this site (and why we like it over others) is that with each lesson you watch/read, you get a badge. You can collect up to 101 badges total. It is a clever way to keep track of what you have yet to learn from the website. Once you learn all you can learn, you can use some of the tools on the site to figure out how much you can afford and what kind of interest rate you can expect from a lender.
Bankrate.com Mortgage Rates Overview – As with mortgage 101 sites, there are plenty to select when it comes to searching for the best mortgage interest rate and lender for yourself. Our top site is Bankrate.com. Bankrate.com gives some sound financial advice on a wide variety of topics and this extends out to mortgages. They do advertise specific lenders on the site and allow you to search through these lender’s programs, but the site also has some fantastic tidbits on how to select the right mortgage for you. The site also provides some objective industry averages on the interest rates of the different kinds of mortgages. It even includes the pros and cons chart for each type of mortgage. It is a great site to start your search for the best mortgage interest rate and program for yourself.
Investopedia Real Estate Terms – With the previous two sites, you will be see a lot of real estate buzz terms that might not make much sense, even in the context of the page. It can be frustrating to try to learn about a subject, only to faced with even more challenges as terms are introduced to you that you don’t have a clue about their meaning. Our favorite site for defining any financial term is Investopedia. They have a page devoted to real estate terms and have found the definitions to be written in lay terms that anyone can quickly understand. In fact, this source is so good, you might want to keep it around even while house hunting because the realtor will introduce you to a ton of new terms as well when you start that phase.
TrinityTouch Buyer’s Estimated Closing Costs – One of the last things you want to do before launching into the house hunt with a realtor is get a good grasp on how much cash you will need at closing. Each mortgage will have their own requirements for the down payment, but you will also need some cash for closing fees. How much will this be? Most title companies today have apps you can use to quickly calculate the cash needed at closing. Our favorite is TrinityTouch by Trinity Title of Texas. This app has a lot of great additional features, but it comes packed with a calculator for buyer’s fees and down payment needed at closing. You have to know your interest rate, how much you are borrowing and the sales price of the house. Please be aware that all transactions will change over time so be sure to get the final numbers from the title company before closing.