Ready To Apply For Your First Mortgage? 3 Things You Need To Understand About The Mortgage Process

Posted on: 30 August 2019

When it comes to applying for your first mortgage, you need to do more than save up for a down payment. You need to have some basic understanding of the mortgage loan process so that you can navigate the approval process in the most effective manner possible and get a deal you can live with for the next few decades.

Consider Shorter Loan Terms

When people look into getting a home, most people automatically assume that the only option available to them is a typical thirty-year mortgage. However, there are other mortgage options. If you really want to build up equity in your home at a faster rate, you may want to consider a fifteen-year mortgage. With a fifteen-year mortgage, you will generally be offered a lower interest rate, which can help you pay off the loan faster. Also, with the interest rate accumulating over a shorter time periods, the overall cost of the loan will be lower, making it more affordable for you to pay off the loan within fifteen years.

Be Prepared to Pay for Mortgage Insurance

If you use a program that allows you to put down less than 20% for the loan, you need to budget for mortgage insurance. Mortgage insurance is required by many mortgage lenders when you are putting down a smaller amount on your loan. Mortgage insurance can increase the total amount that you are paying for the loan. This isn't a bad thing if it allows you to get into a home; you just need to be aware of the expense. Also, after a few years, when you build up equity in the home, you can refinance your home and remove the burden of paying for mortgage insurance.

Closing Costs Don't Come Out of Your Pocket

Closing costs can be expensive. It is normal for closing costs to run you around 2 to 3% of the cost of your loan. That can be a lot of extra money to come up with. For a $200,000 mortgage, that is an extra $6,000. You are expected to pay closing costs out of your own pocket, separate from your loan.

However, you can work around this. You can offer the seller extra money and ask the seller to "pay" the closing costs for you. For example, you can offer the seller $206,000 for their home instead of $200,000 on the condition that they pay your closing costs for you. This is a simple way to include your closing costs in your mortgage without increasing the amount of money you need to pay out of pocket.