If you are considering buying or investing in a home, you are not alone. Millions of people across the country aspire to own a home where they and their loved ones can live. However, to make this dream a reality, most home-buyers need to think ahead. Due to the high costs of many homes, it is often impossible to afford a home without significant financial assistance.
This financial assistance comes in the form of various home mortgage loans. Home mortgage loans are funds received by homebuyers from certain lenders. These funds must be paid back within a given period for a certain fee.
There are a number of methods by which homebuyers can pay back these mortgage loans.
People typically take out home loans for multiple reasons. Some individuals, couples and families simply want to purchase their first new home. Other borrowers need to find a lender who can loan money for renovations or upgrades.
In some cases, borrowers are actually investors looking to make the most of a given real estate property.
Regardless of the reasons, home loan mortgages are vital funds. A borrower may be the one in possession of the home or property, but it is the lender who technically owns the property. That is, until the loan is paid off in full.
Home mortgage loans are typically paid off in monthly amounts. These amounts can vary depending upon the signed agreement between the borrower and lender. A mortgage itself features many various fees, costs and taxes.
When you reach a mortgage agreement, it is vital that you fully understand the many details of the agreement. A certified mortgage broker can help you recognize, and understand, these many important details.
What Does a Mortgage Loan Include?
If you are wondering about the many expenses, fees and hidden costs in a mortgage loan, you are certainly not alone. Most mortgage payments are usually made on a monthly basis, and include four major aspects: the principal, the interest, the insurance, and the taxes.
Mortgage Principal
This amount is the original amount you borrowed, not including any additional fees or interest assessed. Your principal is typically divided over the months and years you are contracted to pay back your loan.
As you pay back your principal, you can drastically reduce the amount you owe. This may also increase your percentage of ownership of the property.
Mortgage Interest
You are most likely familiar with the concept of interest. In terms of your home loan mortgage, interest simply refers to the cost you pay to borrow the principal for each calculated month. Interest rates vary among lenders and loan types, and can be negotiated through a mortgage broker.
Typically, a lender is more willing to offer reduced interest rates if you are financially healthy. A good credit score typically corresponds to a reduced interest rate. This occurs because you are basically showing the lender that you can pay back your loan.
Mortgage Taxes
These taxes are a percentage of your property’s value and are paid to local governments. The amount of taxes you pay may vary significantly based on the location of your home. You usually pay such taxes annually. You should always consult your mortgage loan broker if you are unsure about taxes. Hefty taxes can be an unwanted surprise for any borrower.
Mortgage Insurance
Insurance is basically a way the lender can protect him or herself from borrowers who are unable to pay back the loan. Insurance also covers hazardous situations and circumstances, such as fires, vandalism and other forms of damage. This so-called hazard insurance is different from property mortgage insurance (PMI).
PMI can be kept in escrow or collected by the lender. In some cases, you will not have to pay PMI. If your lender is confident in your ability to repay, you may forego PMI. This typically occurs if you are able to make a down payment of at least 20% of the value of your property. As you make regular payments, you will reach a point where the PMI naturally terminates.
Your PMI may also terminate if the value of your home loan is a high enough percentage of your home’s value. This is called the loan-to-value (LTV) ratio. If your LTV reaches 80%, you can request to stop the payment of PMI.
Overall, there are many aspects of a home mortgage loan that you must consider. You should be well aware of your financial standing. You should understand the contract you sign. You should also be aware of alternative options, should aspects of the market change.
With the help of a top-tier mortgage brokerage firm, you can prepare for all of these factors. Consult Philadelphia Mortgage Brokers about your home mortgage loan. Certified brokers can help ensure that you are financially able to repay your loan.
Whatever you do, never rush into the process. Contact experts beforehand. Before beginning your loan payment, ensure that you are fully prepared to enter the process.
How to Apply For a Home Mortgage Loan
Getting the loan right for you requires that you understand numbers. You need to evaluate and recognize the importance of your financial health. Your first order of business should be to assess your credit report and history. If you are confused about your credit report, consult a financial analyst.
Assessing Your Credit
You want to make sure that there are no errors or mistakes. Your information should be accurate and updated. If there are severe issues with your credit, you may get rejected for a loan. Don’t risk your mortgage application because of erroneous information.
If you are currently struggling to pay off credit bills, it may not be the right time to pursue a loan. You should do your best to pay off significant debts. Look for debt consolidation options, and consult with credit experts that can provide you a detailed overview of your credit score.
In some cases, your bank may have made critical mistakes. Do not hesitate to consult outside analysts pertaining to any questions or concerns you have.
Understand Your Market & Budget
Sadly, many prospective homebuyers get in over their heads. They think they can afford one thing, when in reality they cannot. They think they understand the market, and then are shocked to see how expensive certain homes can be.
You should be well aware of the home type you want, and the market in which it exists. Are you looking for a small but cozy suburban space? Do you desire a rural or farm-based locality? Do you have your heart and mind set on an urban dwelling?
Next, be sure you understand your budget. Consider the mortgage. Again, it may consist of a significant principal, interest, taxes and insurance. Make a list of your other costs. Do you have car payments, student loans, and other large expenses?
What can you reasonably afford to spend each month on your mortgage? For how many years? What if you lose your job or take a salary cut? Can you still manage if your financial situation worsens? On the other hand, what if your financial standing improves? Would you be able to shorten your mortgage and pay off the home more quickly?
Is refinancing an option?
Completing Your Mortgage Application
Once you have settled on a lender and property, that lender will receive an appraisal. This appraisal finds the market value of the property and typically costs the borrower a fee. This fee may or may not be included in any closing costs for the property.
You can find a lender you like by working alongside a mortgage broker. It is the job of a broker to work as a middleperson between borrowers and lenders. Many brokers are in close contact with lenders, and may be able to get you competitive loans you couldn’t get on your own.
Information You Need to Provide
Once you are ready to engage the process, ensure that you have ample information and documentation ready.
You will need to provide all types of personal, financial and work-related information.
This information includes:
- Banking information such as your contact info, including account numbers, statements, addresses and names of persons and institutions
- Investment statements, including up to three months of documents
- Work and employment information such as W-2s, pay stubs and verification of your employment and income. You may have to show up to two years of income. If you are self-employed, your tax returns and balance sheets are critical proof of your work history.
- Information pertaining to your debt, including current debt owed and the associated account data
- Documents showing you are divorced, if applicable
A lender will review your application and make a determination. If you’re approved, the final stage is to complete the documentation and sign the agreement. If denied, you should immediately consult brokers on your behalf. At Latitude Financial, our mortgage brokers can help with all stages of this daunting process.
