Questions Regarding Mortgage

Obtaining a mortgage may seem difficult and intimidating, particularly for first-time home buyers who are unfamiliar with the real estate market. If you find yourself overwhelmed by the complicated details of mortgages, consult with a real estate agent, mortgage broker or lender representative for explanation. Some housing and real estate agencies also offer mortgage workshops to consumers for little or no cost.

What Is a Mortgage?

A mortgage is, simply speaking, a loan for a house. Consumers cannot usually afford to pay for a house in one lump sum, so lenders provide mortgages to spread the costs out over a determined period of time. The home that is purchased with the mortgage is known as the loan collateral. This means that if homeowners do not meet their required mortgage payments, they will lose their home. Credit unions and banks are the most common mortgage providers.

What Are the Different Types of Mortgages?

Generally speaking, mortgages vary by interest rate and length of repayment terms. Interest rates can be either fixed or adjustable. A fixed interest rate stays the same throughout the repayment period. For example, if you took out a $150,000 loan with a 6.5 percent fixed interest rate and a 15-year repayment term, your interest rate would never change. Other mortgages offer adjustable rates, which usually begin with a fixed interest rate and then change periodically, based on the market rates at the time. Mortgages also vary by length of repayment, and are typically offered in 15-, 20- and 30-year terms.

What Are FHA Mortgages?

An FHA-insured mortgage carries 100 percent coverage by the Federal Housing Administration. This allows lenders to administer FHA loans with lower down payments and less strict financial requirements. An FHA loan may be beneficial for first-time home buyers who can afford monthly mortgage payments and have solid credit and financial history, but who cannot afford a down payment of 20 percent. For qualifying consumers, FHA loans offer down payments as low as 3.5 percent of the home purchase price.

How Do I Get a Mortgage?

Before you apply for a mortgage, be sure to shop around for the best interest rates and loan terms. Evaluate your budget thoroughly and honestly, and consider meeting with a mortgage broker to discuss your financial options. Once you have chosen a lender, get pre-approved. The pre-approval process involves a credit check and basic financial evaluation, and will give you a general idea of how much of a mortgage you can afford. It may also make any home offers you submit more appealing to sellers.

How Much Can I Afford?

The overall cost of a mortgage depends on how much you spend on a home and what kind of mortgage you take out. Most mortgage lenders are hesitant to provide mortgages to home buyers with a debt-to-income ratio that is higher than 36 percent. Calculate your debt-to-income ratio by adding up all your monthly debts and dividing by your monthly gross income. If the result is more than 36 percent, you might want to reconsider a home purchase at this time.


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