Simply put, a mortgage is a loan used to cover the cost of purchasing a home. The bank that is giving you the money to purchase the home will, in turn, hold the deed to the property until the loan is paid off. Most mortgages are long-term loans and can be active for 10, 15, 20, or 30 years. The loan term will depend on how much is borrowed, how much you put down, and how long you want the loan to last.
What Makes a Mortgage?
Mortgages are made up of three parts. The down payment is the initial amount of money you put down on the home. This is usually between 15% and 20% of the home’s value. The principal is the amount of money you borrow after the down payment has been paid. In other words, it is the difference between the purchase price and the down payment. The last part of a mortgage is the interest. The interest is the money you pay to the bank that is offering your loan. The amount of interest you pay will depend on the interest rate that is attached to your loan. It will also depend on the type of loan you have.
Mortgage Fees and Other Costs
In addition to the traditional closing costs, you will also have to pay other fees when finalizing your loan. You will have to pay the property taxes associated with your land and your home. You will also have to purchase homeowners insurance and private mortgage insurance. Most of these fees will be divided up, with a percentage for the year added to each payment you make on the loan. Private mortgage insurance is normally a requirement if your down payment is not sufficient enough to give you 20% equity in the home you are purchasing.
Types of Mortgages
Fixed-rate mortgages and adjustable-rate mortgages are the two types of mortgages. A fixed-rate means that the interest rate will remain the same throughout the duration of the loan. Your payments will remain the same for the entire term. Fixed interest rates are offered on 15- or 30-year loans. The longer the term of the loan, the more interest you will pay to the lender.
An adjustable-rate mortgage uses an interest rate that may change several times throughout the term of the loan. This means if interest rates go up, so will the amount of your loan payment. If the interest rates drop, your payments will decrease.
There are multiple types of loan programs that are designed to help people get the mortgages they need. A VA loan (Veteran’s Affairs) is available to any veteran or active-duty serviceman or woman. FHA (Federal Housing Administration) loans offer first-time homebuyers an option to pay a lower down payment and make lower than normal payments. Homeowners will be required, however, to purchase private mortgage insurance. If the home you are buying is in a rural area, you may qualify for a USDA loan (United States Department of Agriculture).
Buying a home can be overwhelming. Andraya Coulter has the knowledge and experience you need to sell your home even in the most difficult times. If you have identified your next home, contact us today for any assistance related to financing your mortgage.