A mortgage is simply a loan where you borrow money against the value of the home. It is an agreement between you and the lender that gives the lender the right to take your property if you fail to repay the money you have borrowed, plus interest. The majority of people who buy a home – especially first-time homebuyers – have a mortgage in order to purchase their home.
When comparing mortgages there are a few things that you should pay the most attention to:
- The size of the loan
- The interest rate and any associated points
- The closing costs of the loan
- The Annual Percentage Rate (APR)
- The type of interest rate and whether it can change (is it fixed or adjustable?)
- The loan term (how long you have to repay it)
It is important that your mortgage is affordable and fits in your budget, which is why it is critical to talk to a mortgage professional. Just because you qualify for an amount, does not mean that it is in your best interest to borrow that much. How much you can borrow is very different from how much you can afford to repay without stretching your budget for other important things too thin. A good mortgage planner will look at your family’s income, expenses, and saving priorities to see what mortgage will fit comfortably within your budget and lifestyle.
Knowing how much you can comfortably pay each month will also help you estimate a reasonable price range for your new home. Also, don’t forget to add in all of the other costs when coming up with your ideal payment. When calculating your monthly payment, be sure to include homeowners insurance, property taxes, and private mortgage insurance. Fairway uses great technology to show you various loan scenarios that fit your budget with all of the factors built in so there are no surprises when you close.