Mortgage 101

Do you find yourself googling “What is a mortgage?” or “How do I get a mortgage?” 

If you’re a first time home buyer and aren’t sure where to get started with getting a mortgage, you’ve come to the right place. 

Welcome to: Mortgage 101!

We’ll break down what a mortgage is, how to get a mortgage, and how to refinance your mortgage down the line, along with a few other need-to-know tips and tricks about mortgage lending. 

Let’s get started.

What is a mortgage?

A mortgage is a fancy name for a loan! You, the borrower, work with a mortgage lender, who lends you the money to either buy a home or refinance the one you currently own (we’ll get to that a little later). The mortgage is what you pay each month, and that amount includes interest.

When you enter in a mortgage agreement with a lender, this means that if you fail to pay your mortgages on time and in full, after a certain amount of time the mortgage lender can legally repossess your property. That’s why it’s important to understand the ins and outs of your mortgage and go over everything in detail with your lender.

There are a few different types of mortgages:

• Fixed rate: A fixed rate mortgage means that the interest rate you get when you buy your home never changes. It’s fixed. (To make this a little more confusing, you actually can change it by refinancing, which we’ll get to in a moment.)
• Adjustable rate: An adjustable rate mortgage changes over time. Usually you set an interest rate for a few years and then you readjust the rate with your lender annually after that.
• 30-year: This is the most common length of a mortgage, as it’s the longest repayment period available. 
• Short term: You can 20-, 15-, or 10-year mortgages as well. These are not as popular as 30-year mortgages, but they do allow you to pay off your loan quicker.
• Conventional loans: These are the most common type of mortgage loan and they allow borrowers to put as little as 3% down on a property.
• Government-backed loans: These mortgage loans are owned by different federal agencies. The Federal Housing Agency (FHA) loan allows people with lower credit scores to get a mortgage, for example. There are also Veteran's Assistance loans (VA). VA helps Veterans, Servicemembers, and eligible surviving spouses become homeowners. 

There are other kinds of mortgage loans, but the ones listed above are the most common. The best thing do do is speak to a lender directly and explore your options. If you need a recommendation, just reach out!  

How to get a mortgage

Getting a mortgage is simpler than it seems. Here’s how to do it in five easy steps:

1. Choose a mortgage lender you trust. We highly recommend Meridian Bank, Movement Mortgage, and Rate. 
2. Get pre-approved. This involves your lender going over your finances (including debts, credit score, assets, etc.) and determining how much of a loan you will be able to obtain.
3. Find your forever home! This is where we come in :)
4. Work with your lender to submit your mortgage application for the home you wish to buy. 
5. Close on your home and secure your mortgage. Make sure you read through all paperwork at closing so that you aren’t surprised by any unknown payments in the future!

Pro tip: while we encourage speaking to a lender early to map out a game plan, make sure you are ready to purchase a home when getting a formal pre-approval for a mortgage! The pre-approval process slightly affects your credit score and pre-approval only lasts for 90 days, so make sure you’re set on buying a home within this time period. 

How to refinance a mortgage 

When you refinance your mortgage, you’re essentially trading in your current mortgage for a new one. People most often refinance their mortgage so that they can obtain a lower interest rate on their home payments. 

To refinance your mortgage, first speak with your lender, who will go over all your financial information again. They’ll then determine whether or not you meet the refinancing requirements.

If you do, you’ll then need to lock in a new interest rate. In order for your new mortgage and interest rates to be secured, you’ll have to get your home appraised again, just like you did when you first purchased it. The appraiser will determine whether the appraisal amount matches the loan amount. 

If everything is in order, your lender will complete your paperwork and your new refinanced mortgage will be good to go! 

For more mortgage tips, or if you’re ready to start touring your dream home today, contact us here. We’d love to meet with you!