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What is a mortgage?
A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you don't repay the money you've borrowed plus interest. Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.
Do I need to get prequalified for a mortgage?
There are a couple of reasons to get prequalified for a mortgage. First, you'll find out how much you can comfortably afford which can help when looking for homes. Second, having a prequalification before making an offer may give you an edge over other buyers.
How much mortgage can I afford?
You'll need to take several things into account when determining how much you can comfortably afford. Consider how much you make, your monthly expenses, how much money you have saved, how much you can put towards a down payment, current interest rates and current home values.
You should also think about how much you feel comfortable paying each month for a home. Don't forget to include other expenses for things like cars, food, gas, groceries, entertainment and clothes. Write everything down and review your budget so you can see how much you bring in versus how much you spend each month.
What types of mortgages are available?
There are a number of types of mortgages available for home buyers, but the two most common types are fixed-rate and adjustable-rate.
With a fixed–rate mortgage, you'll always know what your monthly principal and interest payments will be. You can also lower your monthly payments by spreading them out over a long period of time. You can choose a 10–, 15–, 20–, 25– or 30–year term, and low down payment options may be available.
Adjustable-Rate Mortgages (ARMs) offer lower early payments than a fixed–rate mortgage. If you're planning on owning your home for a short period of time, an ARM may be a good option. Your interest rate is fixed for 5, 7 or 10 years (based on the chosen product), and becomes variable for the remaining loan term, adjusting every year thereafter. For example, a 5/6 ARM would have a fixed interest rate for the first five years and then convert to an adjustable rate, with annual adjustments for the remaining term of the loan. You can choose a 5/6, 7/6 or 10/1 ARMs with a 30–year term.
When deciding the best mortgage option, take a look at your budget and determine how much you can pay each month.