A mortgage is a type of loan that enables you to buy a home. You typically pay the lender a down payment (money you put down to reduce the cost of the house), and they lend you the rest of the money to buy the home.
You agree to repay the mortgage at regular intervals over a set period of time, usually 30, 20 or 15 years, and the lender will charge interest on the amount you borrow. Your mortgage payments will include principal and interest charges as well as property taxes and insurance.
When you’re shopping for a mortgage, shop around to find the best terms and rates. Get quotes from several lenders and brokers to compare costs, including points and other credit costs, and the APR the total cost you pay for your mortgage as a yearly rate.
Prepare to be approved for a mortgage by meeting minimum credit score requirements and verifying your income and debts using W-2s, pay stubs and federal tax returns. You may also need to submit additional documents that will help your lender confirm your details, such as proof of ownership and an appraised value.
Be aware of any fees or extra charges that could apply to your loan, and ask for them before you sign. Those charges may be included in your loan, but they can also be tacked on to your monthly payments, which can make your mortgage more expensive in the long run.
Choose a mortgage with an interest rate that is low enough to make sense for your situation and budget. Your interest rate is one of the most important factors in calculating your monthly mortgage payment and it can have a huge impact on your credit score.
Calculate your total mortgage payment by taking your home’s price, down payment, mortgage term, interest rate and property taxes into account. This will give you a clear picture of what your monthly mortgage payments will be.
Consider a home equity loan, or second mortgage, if you want to borrow more than the value of your home. These loans are secured by the value of your home, and can be used to finance things like major home improvements or paying for college.
Use the Mortgage Shopping Worksheet to get the details and terms of each loan you’re interested in. Then, you can prepare to negotiate for the best deal.
Buying a home is the biggest financial commitment most people will ever make. Choosing the right mortgage for your needs is essential to avoiding costly mistakes and making sure you can afford the home of your dreams.
Mortgages come in a variety of forms and can be obtained through many different sources, such as banks, savings and loan associations, credit unions, online-only lenders and mortgage brokers. Choosing the best mortgage will save you money over the life of the loan, so it’s important to shop around and compare rates.
The best time to start looking for a mortgage is when you’re ready to purchase the home of your dreams. Be prepared with all the paperwork, such as a complete application, your credit report and W-2s. And don’t forget to avoid applying for new credit during the mortgage process, which can hurt your credit score and increase your DTI.