Each year, nearly $2 trillion worth of mortgage loans are issued in the United States.
If you are tired of renting and want to own a home of your own, the first step in this process is finding a mortgage. Most first-time home buyers fail to realize just how many different mortgage options there are on the market.
Failing to take the time to research the interest rate and APR a mortgage can lead to a lot of problems in the future. The more you can find out about a mortgage, the easier you will find it to make this complex decision.
The following are some of the most important things you need to know about mortgages.
1. Believe, or Not the Lowest Interest Rate isn’t Always Your Best Bet
Many first-time home buyers automatically think the mortgage with the lowest interest rate is the best deal, but this is not necessarily true. Simply relying on the interest rate of a mortgage to make this vital decision can lead to mistakes being made.
There are some mortgage companies who artificially reduce the interest rates on their loans to make them more appealing to consumers. If a loan has an extremely low-interest rate, you need to do some digging to find out why.
Choosing a mortgage with an adjustable rate may lead to you paying a lot more in the future. Ideally, you want to choose a mortgage that will work for your financial situation. Finding out the details on each of the mortgage options at your disposal is essential before making this important choice.
2. Think About More Than the Monthly Payment
If you are like most home buyers, one of the biggest concerns you have is how much your mortgage will cost on a monthly basis. While this is an important factor to consider, you need to look beyond the monthly cost of a loan.
Extending the length of a mortgage is something lenders do to make the monthly payments lower. This may save you money right now, but it will cost you more in the long run.
The longer you have a mortgage, the more you will ultimately pay the lender in question. If at all possible, you need to get a shorter mortgage so you can pay your home off quicker and reduce the amount of interest you pay.
3. Avoid Financing Closing Costs
From time to time, lenders will try to convince home buyers to include closing costs in their mortgage loan. Closing costs can be a bit intimidating, especially if you are on a tight budget.
Instead of financing these costs and increasing your loan amount, you need to find a way to pay them. Financing the closing costs means you are paying this expense with the equity of your future home.
Due to the interest on your mortgage, you may pay double for the closing costs in the long run. You will usually have a few months’ notices before closing costs are due. Buckling down and cutting corners may not be fun, but it can help you get the money you need.
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4. Longer Mortgages Can Affect Equity
Not only can choosing a longer loan to lead to you paying more for a home, but it can also cause equity to grow at a slower rate. Equity is determined by how much of the principal you have paid down on your loan.
The monthly payments made on a longer term mortgage will be mostly interest. This is why you will have to wait to do things like taking out a home equity line of credit.
Shorter term mortgages will have a higher monthly payment, but they also allow you to build equity at a much faster rate.
5. Consider the Total Cost of the Loan
Before signing off on a mortgage loan, you should definitely assess the total cost. There are numerous fees and charges on a mortgage, which can be a bit overwhelming for first-time buyers.
Paying close attention to how your monthly payment will be split between principal and interest can help you greatly. Ideally, you want to choose a home loan that allows you to put the majority of your monthly payment on the principal.
Rushing through the mortgage selection process can cause you to lose a lot of money in the coming years. The time and effort invested in the research you do will pay off. Working with a reputable and experienced lender can help you get the guidance needed during this difficult process.
The Right Mortgage is Out There
Generally, you will have to apply with various lenders before you find the mortgage that is right for you. There may be times when you feel deterred and like giving up on this process altogether, but you need to persist to get the best mortgage loan.