Home Loan & Mortgage Education
You probably know the basics of borrowing money: credit, interest and payments. Mortgages and home loans are the same idea, with some added complexities. Read through this rundown to demystify mortgages and know what to expect when you’re ready to buy.†
How do I get a mortgage?
Before you apply, assess your finances to make sure a mortgage is right for you with these 5 Financial Steps. Do some research to find a reputable lender—large financial institutions, credit unions and community banks are all good options, and government loans are available through the FHA (Federal Housing Administration) or VA (Veterans Affairs) if you qualify. Some lenders, such as Pulte Mortgage, specialize in new construction financing. Learn more by reading Consult the Professionals.
What types of mortgages are there?
Fixed-rate mortgages are the standard home loan: You pay a set amount every month and the interest rate never changes. They’re best for homebuyers who plan to stay for a number of years and want predictable payments. A 15-year fixed-rate mortgage usually has lower interest than a 30-year, and is best for homebuyers who want to pay off the mortgage quickly, and pay less overall with higher monthly payments. Fixed rate mortgages are a great opportunity to lock in a low interest rate and save money over time.
Adjustable-rate mortgages have interest rates that vary based on the market. They’ll often have a fixed interest rate for the first 3, 5 or 7 years, and then adjust annually for the rest of the loan’s duration. These mortgages start with lower interest rates than fixed-rate mortgages, which makes them more appealing, but once the adjustable rate kicks in, your monthly payment could go up or down significantly.
What’s in a monthly payment?
Your monthly mortgage payment includes an amount paid toward interest and an amount paid toward the principal. Lenders will often include property tax and homeowner’s insurance in your monthly payment, hold them in an escrow account and then pay them on your behalf when they’re due. (Those amounts are reassessed annually.) If your loan requires private mortgage insurance, that will be included in your monthly payment, too.
What are closing costs?
Purchasing a home involves a number of services: appraisal, title services and so on. Those services and their associated fees are usually around 2-3% of the loan amount and are paid at closing. It is likely that the lender will ask that you pay some costs, like the appraisal and the credit report fee, not long after you have applied for financing. Your lender will provide you with a loan estimate of these costs after you apply for a loan.