Budget, budget, budget – it’s the keyword for first-time homeowners. You want to use a house payment calculator to figure out how much house you can afford, taking into account your income and debt. These are things to consider before you begin the mortgage process if you’re looking to finance your home. There are many types of mortgages available from lenders, and equipping yourself with basic mortgage knowledge will put you a step ahead.
Adjustable-Rate Mortgage
An ARM is a type of loan with an interest rate that varies depending on how market rates fluctuate.
Your interest rate is usually lower than what you’d get with a fixed-rate loan during your introductory period. Thereafter, your interest rate will follow market interest rates.
As is common practise among developers, when beginning work on a new project, developers will provide applicants with special discounts in addition to bank mortgages to entice them to select new 按揭 plans from approved financial institutions.
Fixed-Rate Mortgage
A fixed-rate mortgage has the same interest rate throughout the term of the loan and is typically done over a period of 15 or 30 years.
This loan is great for those who seek stability and predictability, though sometimes you end up paying more in interest over the life of the loan.
Debt-to-Income Ratio
Your DTI is what mortgage lenders look at when considering you for a loan to make sure you will be capable of making the payments.
This ratio is equal to your total fixed, recurring monthly debts divided by your total monthly gross household income. Most lenders cater to applicants who have a DTI of 50% or lower.
Private Mortgage Insurance
PMI is a type of insurance that protects your mortgage lender in the event you default on your loan. Lenders typically require borrowers to purchase this if they have less than a 20% down payment on the house.
Once you reach 20% equity in the property, you may be able to remove the PMI from your loan.
Amortization
This is the process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.
An amortization schedule can reflect consistent monthly payments and keep you on track to pay off your loan within the mortgage term.
Annual Percentage Rate
Your APR is the interest rate you’ll pay on your loan annually plus any additional lender fees.
Closing Disclosure
This is a document that tells you the final terms of your loan. It will outline your interest rate, loan principal, and closing costs.
Your lender is legally required to give at least 3 days to review your closing disclosure before signing on your loan.
Closing Costs
These costs are fees you pay to your lender in exchange for finalizing your loan. This can include appraisal fees, loan origination fees, and pest inspection fees.
Closing costs usually equal 3 – 6% of the total value of your loan
Escrow
Most people with a mortgage have an escrow account. This is where the lender holds money for property taxes or homeowners insurance, and it allows you to split taxes and insurance over 12 months instead of paying it in one lump sum.
