WHAT IS A MORTGAGE?
Mortgage is just a fancy word for home loan. The difference between a mortgage and a regular loan, is that your house is used as collateral. That means if you can't pay your mortgage, the bank can legally sell your house to get their money back.
In a typical real estate transaction, the bank puts up the majority of the money. You agree to pay them back in monthly payments and and all you need up front is the...
This is the part of your loan that comes out of your bank account. You pay this amount up front, then the bank will loan you the rest.
This money can be gifted to you if you are lucky enough to have someone willing to help you.
Down payment is always a % of your loan. But this amount varies depending on the type of loan.
Types of Mortgages
These are the most common types of loans. The money comes from banks or direct lenders. They often have better interest rates and less additional fees than FHA loans, but typically require better credit and a larger down payment.
Fewer "premiums, fees, and requirements than FHA
Can be more competitive if multiple offers are placed on a home.
Require higher credit scores
Typically require large down payments ( 20% is standard)
(Down Payment Assistance programs for 1st time buyers can require as little as 0.5% down!)
These are loans backed by the Federal Government. They are subject to higher rates and require additional insurance, but can be a great option because of their low down payment and credit score requirements.
Typically only require 3.5% down
Require lower credit scores
Require additional insurance
(private mortgage insurance)
Typically have higher interest rates than Conventional.
Will require majority of repairs be done to the house before purchase.
What makes up a mortgage?
There are 4 major parts of a mortgage that are typically built into monthly payments. These are usually abbreviated...
The amount of your monthly payment that pays off your total loan amount. A small percentage at the beginning of the loan, but it grows with each payment.
This is the fee that you pay the lender in order for them to lend you the money.
This is the amount of property tax that you will pay for your home.
This refers to property insurance you must pay on your home. This is usually paid separately from your mortgage payment.
**Loans with less that 20% down typically require additional insurance called Private Mortgage Insurance.**
Will I Really Be Paying This off for 30 years?
Short answer is probably not. The vast majority of loans are refinanced at some point. This means that a few years down the road you can go back to the your lender and say, I want a new loan based on what my house is worth now. At this point you can likely get a better rate because:
You will have likely paid down a portion of your principle, meaning you owe the bank less money than when you started.
You will likely have a better job or be making more money than when you first took out a mortgage.
which may let you qualify for a better interest rate.
Hopefully the house will have increased in value since you've bought it. Maybe you did some renovations, or maybe the neighborhood is getting nicer. Either way if you could sell your house for now than you bought it for, the difference in price is your equity.