Buying a home is probably the most important financial transaction that you’ll make in your life no matter. If you are a first-time buyer or buying second/third home. It is a stressful process and requires careful planning. This first-time buyers mortgage guide 2020 can be helpful to understand the whole process.
Owning your own home is one of the first steps you can take toward earning financial independence. That’s because as a homeowner, each mortgage payment you make adds to the equity you own on your home—increasing your net worth.
At National Resource Connect, we’ve put together the following mortgage guide specially focusing on 2020. That covers everything you need to know about the home buying process. This guide 2020 will explain why having a mortgage is a good thing, how to get a mortgage, what types of mortgages there are, what the current interest rates look like, and more.
First, let’s cover the basics and answer some questions to know more about mortgage guide 2020.
The Value of Home Ownership
There are several benefits to owning your own home. First, you’ll have a permanent residence that your family can enjoy for as long as you’d like, and you can also customize your living space however you want. You also don’t have to worry about a landlord increasing your rent, or having to move to a new place every few years.
Home ownership is usually a good financial investment. Each month, you’re increasing your net worth with every mortgage payment. If you sell your home, you’ll most likely paid back. The equity you’ve established, and hopefully then some. In most areas of the United States, home values increase.
So, owning a home is an investment in your family’s future. When you rent an apartment, the rental money you pay each month adds to your landlord’s net worth—and that’s money that you’ll never get back.
How Mortgages Work
Because of the high price of most homes, very few people can afford to pay for a home outright with cash. According to Zillow, the median home price in the U.S. is $231,700. So, to pay for a home purchase, people often take out a loan from a bank or lender, called a mortgage.
Mortgages typically cover the cost of a home purchase after the down payment done. As a borrower, you then pay this mortgage loan back to the bank over years in the form of monthly mortgage payments. A typical mortgage term is thirty years, but there are also ten and 15-year terms.
Mortgage Refinance is the best way to get rates for your loan.
What is a Down Payment?
For mortgage it is a very popular statement buyer asks how mortgage with low down payment works? so what is the down payment? When you buy a home, you’ll typically approach the transaction with some money ready to pay right away toward the home purchase. Down payment amounts typically range from 5% to 20% of the home’s selling price. Generally, the more money you can put down, the better.
How Much Money Should You Put Down?
If you can afford it, your down payment should be at least 20%. That’s because if your down payment is less than 20%, you’ll most likely have to pay for private mortgage insurance (PMI).
PMI is essentially an insurance policy. Paid for by the borrower, that protects the lender in case of a default. (A default is when the borrower stops paying their loan.) The reason that lenders require PMI is that borrowers with less than 20% equity are more likely to walk away from their loan, which is a huge problem for banks/lenders. As a result, if you don’t have a 20% down payment, you must pay PMI, which typically costs 1% of your loan amount annually.
Let’s say you want to buy an average priced home at $231,700. If you put 10% down, your mortgage loan would be around $208,530. Since you only put 10% down, your annual PMI cost will be around $2,085, or $174 each month. This is money down the drain because you don’t get that money back if you sell your home as you do with your mortgage payments. Therefore it’s recommended to save up 20% for a down payment.
If putting 20% or even 10% down is out of the question, don’t worry. If you have a steady job, some money saved up, and a decent credit score, you can probably still qualify for a loan. For example, first-time home buyers can qualify for an FHA loan, which is a government-backed loan that allows you to put as little as 5% down.
Overview of Mortgage Terms and Interest Rates
Banks make money from interest fees charged on the money you borrow. At the time of this writing, the average interest rate on a 30-year fixed mortgage in the U.S. is 3.73%. Three to four per cent might not sound like much, but people are often shocked to see how quickly it adds up.e
Going back to our $231,700 sample home—let’s say you put down a full 20%. Your loan will be around $185,000. Using the nifty tool at MortgageCalculator.org, you can see that with a traditional 30-year loan, at an interest rate of 3.73%, you’ll wind up paying close to $123,000 in interest. That’s right—over $100,000 of your hard-earned money going straight into the lender’s pocket. And this number only goes up if you have a bigger mortgage. No wonder why banks are so eager to lend money!
Check our guide on How to lower mortgage payment
If you want to pay less in interest—and who doesn’t?—your options are:
- Put more money down. Any extra money you can put down upfront reduces the amount of money you have to borrow from the bank. You’ll pay less interest.
- Take out a shorter loan term. In our example above, if you were to take out a 15-year loan instead of 30-years, you’d pay only around $57,000 in interest instead of $123,000. Your monthly payments would be twice as much, which is out of reach for many people.
- Make additional payments. If you’re set on taking out a traditional 30-year loan, you can make extra payments each year to pay it off sooner. The more you pay each month, the quicker you’ll pay off your loan, and the less interest you’ll pay.
- Buy a less expensive home. It’s easy to get carried away when shopping for homes. Just remember that the bigger your loan is, the lower your chances are of paying it off.
- The Mortgage Application Process
So you’ve taken the plunge and want to buy your first home. Let’s look at the steps you’ll want to take to ensure that the process goes as smoothly as possible.
Step 1: Check Your Credit Score Before Mortgage
The first thing you should do is check your credit score. Why? Because your credit score determines if you can get a loan. Your credit score also plays a role in how much money you can borrow and what interest rate you’ll pay. If you have bad credit, unfortunately, it might be difficult to get a loan from a private lender. However, you might still qualify for an FHA loan.
If you’re interested in knowing your credit score, National Resource Connect has partnered with FreeCreditScore.com. In just a few minutes you’ll get access to your credit score, so you can start the mortgage application journey armed with that information.
Step 2: Don’t Take Out Any New Loans or Debt before Mortgage
If you’re serious about buying a home, now is not the time to buy a car or finance an expensive HDTV. That’s because any new loans you take out will cause a hard inquiry on your credit score, which temporarily lowers your score. As a result, when you apply for a mortgage, you might get hit with a higher interest rate because of your credit score is lower at the time of your application.
That said, it’s best to take things one step at a time. Get your mortgage application and home purchase handled before making any other big purchases. Homeownership also has unforeseen costs that might arise, like renovation and maintenance costs. That’s why we recommend getting settled into your home and start making mortgage payments for a few months (or even a year). Then you’ll be in a much better position to see if there’s any money left over for a large purchase.
Step 3: Choose a Lender To Mortagage
Once you’ve got all your financial ducks in a row, it’s time to shop around for a mortgage loan. Thanks to advances in technology, millions of Americans are applying for mortgages each day, right from the comfort of their own home.
At National Resource Connect, we’ve partnered with the nation’s leading mortgage lenders.
In just a matter of minutes, you’ll be able to find out if you qualify for a mortgage, and get an idea for what your monthly payments will look like. Visit our mortgage application page here to get started. Just enter your name, email address, phone number, and home address to get started. Our agents are standing by to help.
Using our interactive portal, you can apply for a mortgage, learn about refinancing options, home equity loans, and more.
If you’re looking to get a mortgage, you’ll then tell us a little more about the home you’re looking to purchase, like if it is a single family home or a condo, what is the selling price, and when you plan on buying it.
You’ll then matched with lenders in your area that can help you buy your home. It’s that easy!
Getting Settled in Your New Home
If you’ve made it this far, you may very well be on your way to buying your first home. Congrats!
Remember that this is a very important step in securing financial independence for you and your family. If you take care of your home and make your mortgage payments on time. It’s almost guaranteed that your investment will pay for itself over time. You might even earn a profit if you decide to move down the road.
All that’s left to do is go shopping with your loved one at your nearest Home Depot or Lowe’s, and decide which colors to paint the living room, dining room, and bedrooms. Your loved one might even come up with some new projects for you to do when you’re at the store. What could be better?
Here’s to finding the home that’s right for you and to making wise investments for your family’s future.
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