Mortgages are one of the easily accessible finance options for anyone who owns a property. First-time homeowners leverage it to hasten the acquisition of their dream home. Logically, a mortgage appears to be a secure loan because the value of the property is likely to appreciate over the years. This, however, does not mean you should get one without understanding what you are getting into.
Here are some essential things to note before getting a mortgage;
Different types of mortgages
There are different types of mortgages. Your age, employment status, and purpose for taking the loan will help determine the best for you.
Conventional mortgages are generally not backed by the government (federal, state, and local). The main difference between this type of mortgage and others is that it is insured by the government, and whenever there is a default, the government will be responsible for the repayment.
They usually have stricter requirements for borrowers to qualify. There are two major conventional mortgages — conforming and non-conforming.
Conforming loans have a maximum limit which is usually set in compliance with government directives and varies based on location.
The non-conforming loans allow to borrow above the set limit; that is why they are sometimes referred to as jumbo loans. It attracts higher interest rates and insurance requirements.
The Federal Housing Administration (FHA) has a set of loans for people who do not qualify for conventional mortgages, notably first-time home buyers. It allows down payment as low as 3.5% of the property value.
To be approved, borrowers are required to pay an upfront mortgage insurance premium and repeated annually until the end of the loan lifetime.
The interest rate on this type of mortgage never changes through the loan term. There are two popular mortgages, including a 30-year fixed rate mortgage and a 15-year fixed-rate mortgage.
Adjustable rate mortgage
The interest rate for this type of mortgage is periodically adjusted. For the specified period, the rate may be fixed and later varied for the remainder of the loan term.
Homebuyers in rural areas can qualify for U.S. Department of Agriculture (USDA) insured loans. Little to no down payment is usually required before approval.
This is specially packaged for military personnel and veterans. It is backed by the Department of Veterans Affairs. No down payment or upfront mortgage insurance is required.
To qualify, you will need to pay a funding fee which is determined by your service category.
A reverse mortgage loan is best for retirees. To qualify, applicants must be at least 62 years old. To qualify, you must be residing on the property. The loan lifetime expires the day the borrower dies, moves out of the property, or defaults on taxes.
To access both government-backed mortgages and private mortgages, you will need to access a mortgage lender. According to ReverseMortgageReviews.org, https://reversemortgagereviews.org/, there are lots of companies offering mortgage loans, but not all of them are perfect for you. Before choosing any, make sure they offer the best interest rate, the down payment you can afford, and reasonable processing fees.
Mortgage lenders consider certain requirements in their screening of mortgage applicants. Usually, the requirements will be determined by the mortgage loan type. Some of them include;
Anybody of legal age can apply for a mortgage loan except for a reverse mortgage which mandates applicants must be 62-year-old and above.
Credit scores are considered in the evaluation of your capability to repay the mortgage. The higher your credit rating, the better your chance.
Applicants with credit scores lesser than 620 may find it hard to get approved for a conventional mortgage.
You can boost your credit score by repaying outstanding loans. Approach your lender’s collection agency to know if they offer a “Pay-for-delete” policy. This means the collection will be erased from your record once you pay off the debt.
Job security and Income
Credit scores and down payments appear to be the most important things lenders consider. To reduce risk, they usually consider your job stability and stream of income.
If you are contemplating leaving your present job, hold on until your mortgage is approved. This also applies to any co-signer.
It is advisable to save up until you can afford at least a 20 percent down payment of the property before applying for a mortgage. This will reduce the principal (the amount borrowed) and eventually the total interest.
This should be considered irrespective of the mortgage type you have in mind, except if it is a reverse mortgage or VA mortgage.
For conventional loans, you will have to pay upfront private mortgage insurance (PMI), which is recurrent annually. A lower loan balance means lesser PMI yearly.
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