Before You Get a Mortgage
If you're considering a home purchase in the near future, brush up on your mortgage knowledge. Learn what to do before applying for a mortgage, what to watch for during the process, and how to use a mortgage after you've bought your home.
A mortgage is a big responsibility. The bank risks a lot of money, and they have been increasingly cautious since the subprime mortgage crisis of 2007. To qualify for a mortgage, good credit is essential.
Mortgage lenders want to make sure you don't borrow too much. They look at how much your mortgage payments are relative to your income, ensuring you have the ability to pay. Run your own mortgage calculations to understand what you can afford.
If you're a first-time home buyer, you may qualify for a special mortgage. Sometimes these are extremely valuable, and sometimes they're not. Make sure you are familiar with these programs and restrictions on these mortgages.
A 30-year fixed rate mortgage is generally the safest and best bet, especially if you expect to live in your house for more than five years or so. It's easier to understand and pick apart a fixed rate mortgage.
There are a wide variety of mortgage options out there. You may find that some of the most creative ones (like interest only, negative amortization, and adjustable rate mortgages) work best for you. These mortgages might work for self-employed individuals with unpredictable (but sufficient) income, real estate investors, and buyers with a specific plan that fits these loans. However, you can also get yourself in trouble, so it pays to learn about the risks of each type of mortgage.
A second mortgage allows you to borrow against the value of your home. You can get access to a large line of credit with an attractive rate, though there are some pitfalls.
It's possible to get a mortgage without a 10 percent to 20 percent down payment. Some people get a mortgage with no money down. There are a few legitimate programs allowing you to get a mortgage with very little down. Get acquainted with some of the safer mortgage programs out there.
There may come a time when you can get a better mortgage. Perhaps mortgage rates have changed, or your credit improved. Refinancing a mortgage is a powerful move when done for the right reasons.