Purchasing a home can be a difficult task for homeowners particularly if they are unfamiliar with the actual process. Many find understanding their mortgage the most difficult part since it contains a lot of information and often terms they don't understand. If you are buying a home, here is what you need to know about mortgages.
The first thing you should know about mortgages is that there are a variety of companies that offer mortgages to cover the cost of buying a home. Generally these are national companies that provide mortgages to homeowners throughout the United States, although you may be able to qualify for a mortgage through your local bank, credit union or other financial institution. Going local for your mortgage can provide you with better interest rates in most cases if you have a good credit score and are personally known and reputable with people at the local lending organization.
You should also know that you can use any lender for your mortgage that you want. As a first-time buyer you may assume that the company the real estate agent recommends is your best option, thus you automatically use them to finance the purchase of your new home. However, that particular lending company may not provide you with the best rate possible. This is why it is best to learn about the different lending companies and see what each can offer you in terms of financing your new house.
It is also important to know that there are different types of mortgages, and you will need to decide which one is right for you and the home you are planning to buy. Each mortgage offers different terms, thus it is essential that you carefully read through each one before signing anything. Obviously one of the biggest factors when you sign a mortgage with a lending company is the interest rate that you will be paying for financing of your home. An adjustable rate mortgage (ARM) has an interest rate that fluctuates periodically based on how the interest rate set by the U.S. government. However, you can choose to have a fixed rate mortgage that locks in the interest rate for an extended period of time. This is beneficial to you if interest rates rise, but you could be paying more than you have to if interest rates go down and yours is locked in.
Another thing you need to know about mortgages is the fact that they have different lengths of payment. Some only last for 20 years, while other homeowners have them for 30 or longer. A variety of things can affect this including the interest rate, your credit score, how much you can afford to pay every month, the amount of your down payment and more. The shorter time frame you have for your mortgage the higher your monthly payments will be. However, you should opt for this if possible since it means that you will end up paying less in interest to your mortgage company over the course of your agreement.
It is important that you understand that your mortgage may be purchased at any time. This means that one company can purchase another company and make all their mortgages fall under their jurisdiction. Generally when this occurs you will start making payments for your mortgage to a different address, and you will have different contacts should you have a question about your actual mortgage. While this doesn't occur for everyone, many people do experience it simply due to the length of their mortgage. A 20 or 30 year mortgage is a long time for one business to handle all your affairs.
Knowing what penalties are associated with your mortgage is also important. Many companies charge a late fee if they have not received your payment by the deadline while others increase your interest rate. In addition, it is important to know exactly what the procedures and standard practices are for foreclosure of your home in the event you do not pay your mortgage for several months. You may have an accident or emergency that leaves you strapped for cash and unable to afford it. If this does occur, it's best to call your lender to make special arrangements since they work with individuals suffering personal crises.
It is also essential that as a homeowner you know that mortgages can result in foreclosure if you do not pay or don't make arrangements to pay. Lenders make money by the interest you pay in each of your mortgage payments. When you fail to make your payments, the lender is losing money. A few months with no money coming in causes the lender to foreclose on your home. This allows them to then turn around and try to sell your home to recoup some of the losses they encountered by loaning you the money you didn't pay back.
Understanding foreclosure of your home is important when discussing mortgages. Some lenders allow you to negotiate payments or refinance your mortgage, while others provide you with no options whatsoever. In cases such as these, the only real option you have left to prevent foreclosure of your home is to sell it.
Selling your home in order to stop your lender from taking possession of your house is a much better option than losing the money that you have invested in it. Not only do you lose your home when your lender actually evicts you, but it is also detrimental to the investment you made in your home. For example, you may have paid $20,000 of your mortgage off already, and this is simply money down the drain if your lender forecloses.
Although the first time buying a home may be scary, you can navigate the entire process much easier by gaining a little knowledge ahead of time. By determining what you need to know about mortgages and learning as much as you can in advance, you can find the perfect home and get it properly financed through a mortgage you understand and are satisfied with.