5 Things You Definitely Need to Know about Mortgages
Oh, the American dream: sipping iced tea on your front porch while the children ride bikes through the neighborhood, nighttime family gatherings around the TV eating popcorn, grilling out and entertaining guests for the big football game — all of these scenarios (and many more) center in one location: your home.
Purchasing a home is the American dream, but many people don’t even know where to begin. The most knowledge people have is that a home costs well above the salary they are pocketing every year!
Homes are expensive, but that is why we have mortgages. Do you know what a mortgage is? Do you know how they work, or how to get one? Don’t worry — we have listed five things you definitely need to know about mortgages before you make an offer on your very own piece of Birmingham real estate!
#1: What Is a Mortgage?
A mortgage is a loan specifically for a house. Most loans are strictly based on your credit history. A lender will decide if you are a good risk for a loan, and if so, you simply make a loan payment every month to pay them back. The biggest risk of not paying is a blow to your credit score.
A mortgage is a loan that comes with collateral: the house itself. If you do not make your mortgage payments, you risk eviction.
#2: How Do You Get a Mortgage?
In most cases, people go to banks to get a mortgage. You can either choose to work with your current bank, or try to negotiate a better deal at another bank.
It is always wise to get pre-approved for a mortgage before you start the search for your new home. A pre-approved mortgage will tell you how much a lender is willing to give you, and will give you an idea of what your max budget should be.
During the mortgage process, be prepared to present a ton of documents and to sign a lot of papers. The process is easy if you have all the papers in place. This includes everything from your driver’s license, to bank statements, to your last three pay stubs!
#3: Difference Between a Fixed-Rate Loan and an Adjustable-Rate Loan
It is important to understand the difference between a fixed-rate loan and an adjustable-rate loan to guarantee you are making the best financial decision for your life. A fixed-rate loan is a loan whose interest cannot increase during the lifespan of the house.
While fixed-rate loans are normally considered the most financially secure option, an adjustable-rate loan does have some perks. If you predict that interest rates will drop in the future due to a trend in home market prices, it’s better to get an adjustable rate. That could mean a lower mortgage payment in your future. Plus, adjustable-rate loans are cheaper upfront!
#4: How Long Does It Take to Get a Mortgage?
Generally speaking, mortgages take around 30-45 days to close. That’s a pretty large chunk of time to be waiting to close on your dream home. Knowing this key fact, and planning ahead, could be your lifesaver. Getting the preapproval alone knocks about seven days off of the process! Think ahead — start your mortgage process early!
#5: What Happens When You Sell Your Home?
Mortgages are generally given under a 15 or 30 year contract to help determine the monthly payment. That being said, what if you move? Well, if you move out, you still have to pay the mortgage. Most of the time when people move out, they sell the home. If you can sell your home for the original purchase price, you can send that to your lender and break even. If you sell your house for more than what you owe on your home, you can pocket that money. On the other hand, if you sell for less, you will have to continue to repay the difference.
ARC Realty: Your Guide to Birmingham Real Estate
Do you feel like you have a better understanding of mortgages now? Are you ready to go out and get pre-approved? Go for it!
If you are interested in help along your way, ARC Realty is here! We have a deep knowledge of the Birmingham real estate market and feel confident we can find you your dream home. Contact us to learn more on how we may assist you!
