Thinking about buying a new home? Chances are good that you’ll need a mortgage to make your house purchasing dreams come true.
Mortgages are a very specific type of loan with many moving parts. They can seem overwhelming at the beginning, especially to first-time home buyers.
That’s why we’ve put together this guide to Mortgage 101 facts! Keep reading to learn all about home loans and how to get one.
Mortgage 101: A Beginner’s Guide
With the right information, home loans don’t have to be complicated. We’re going to take a look at your most burning questions about mortgages. This includes the types of mortgages and how to qualify for a home loan.
What Exactly Is a Mortgage?
Simply put, a mortgage is a loan for purchasing real estate. And just like any loan, you’re going to have to apply for (and be approved) for a mortgage to have a home lender give you money to buy a house.
Part of Mortgage 101 is understanding that you’ll borrow a set amount of money to buy your home. You’ll repay this money over a certain number of years with monthly payments.
So, what are mortgage lenders looking for in borrowers? Approval is based upon:
- Credit score
- Debt-to-Income ratio
When you’re applying for a mortgage, you’ll need to provide proof of income in the form of pay stubs or tax returns. As for your credit score, it should be above 700 or you might have to pay a higher interest rate. And, the lower your debt-to-income ratio, the higher your chances are of becoming approved!
What Types of Mortgages Are There?
Everyone has different needs when it comes to buying a home, which is why there are a variety of available mortgages out there.
To help you find the right mortgage, here are some common home loan types:
Fixed Rate Mortgage: This is typically the most sought home loan option. With a fixed rate loan, your interest rate stays the same throughout the life of the mortgage. Most borrowers go with a 30-year or 15-year fixed rate home loan.
Adjustable Rate Mortgage: Also referred to as ARM, this home loan provides borrowers with a lower interest rate for the initial part of a mortgage. It then changes each year, based on current real estate interest rates in your local market.
FHA Loan: With a Federal Housing Administration loan, many home buyers that can’t afford the traditional down payment of 20% can still get a mortgage. An FHA loan allows you to put down as little as 3.5% at the closing of your home. This type of loan is great for first-time buyers and those with less-than-perfect credit.
VA Loan: A home loan from the Department of Veterans Affairs is reserved exclusively for veterans, reservists, and active-duty military personnel. VA loans typically require no or very low down payments and the chance to buy a home with a lower credit score.
Qualify for a Home Loan Today
Thanks to our Mortgage 101 guide, you’re ready to find the perfect home loan for you!
Get started today with a quick email or phone call to Mid America Mortgage for expert advice and support in Central Indiana.