Buying your own home is a responsible decision that is not made in a short time. First, you need to weigh all the pros and cons and decide what you definitely want, what you don't want, and what you still doubt.
In addition, buying a home is an expensive purchase. So, of course, you need to save up for it, and it will take several years. Of course, it all depends on your salary, but in order to buy a house, you will have to save at best for seven years, if not more. Because more and more Americans prefer mortgages. So you get a house now, and you will pay for it in the future. However, about everything gradually.
What is a mortgage?
A mortgage is a specialized financial product for purchasing real estate. You can buy a house, apartment, or land with a mortgage. At the same time, you will not be able to spend a mortgage loan on anything else.
A mortgage is a secured loan, and the property you buy acts as collateral. So, on the one hand, it helps to keep mortgage rates at a fairly low level. On the other hand, you do not fully own your property until you repay the loan. So in case of delays in payments and subsequent non-payment of the loan, the property can go to the lender to pay off the debt.
The terms of mortgages vary. The most popular ones are 15 years, 20 years, and 30 years. However, you can find shorter-term mortgages, for example, for five years, and longer-term - up to 40 years.
Types of mortgage
A mortgage doesn't always look like a personal loan in the sense that you get an amount and make fixed payments each month. There are several types of mortgages, but the most popular are fixed-rate and adjustable-rate mortgages.
A fixed-rate mortgage is also often referred to as a traditional mortgage. There is nothing special or unusual about this type of loan. You receive the full loan amount and make fixed payments each month, which consist of principal and interest. The payments on such loans do not change over time, whether you have taken out a mortgage for 5 years or for 40 years.
An adjustable-rate mortgage works a little differently. According to its name, such a loan has an interest rate that is adjustable. During the first few years of the loan, the rate remains the same as it was at the beginning. Often, the initial interest rates for such loans are somewhat lower than for loans with fixed rates. After a few years, the loan rate will be revised in accordance with market rates.
What do you need to know before applying for a mortgage?
In order to get a mortgage, it is important to take care of two things in advance.
The first is your credit history. If it's good, you can always improve it even more. If it's bad, you'll have to improve it; otherwise, you won't get a mortgage. The fact is that lenders pay a lot of attention to credit rating and prefer to work only with those who have it high. In addition, the higher the credit score, the lower the interest rates you can qualify for.
Second, but no less important, is the down payment. Almost all mortgage loans require a certain amount to be paid at the outset. Its amount may vary depending on the amount of the purchase and the lender. For some, 10% of the amount is enough as a down payment, and some lenders require 20%. One way or another, this is a fairly large amount, and you will also have to take care of its availability in advance.
To obtain a mortgage, you will have to go through a rigorous underwriting process. Mortgage lenders want to make sure in all possible ways of your solvency because the amounts that a mortgage implies are considerable. Therefore, even though the mortgage is secured by real estate, you must meet all the lender's requirements to get it.