If you're someone who's considering purchasing a home, perhaps the most intimidating part of the entire process is applying for a Mortgage. While you may know what some of the basic terms mean, there are other things that can be of great help to you if you will be investing in your first home, or if you simply need a bit of a refresher course. What is a Mortgage? Generally defined, a mortgage is a loan that comes with your home and land, which is used as collateral. If you don't pay this loan back, the lender will then have the right to foreclose on your home. Essentially, this means that the bank owns your home until you fully pay it off and they have a lien against your entire property. So technically, even though you have a mortgage, you are still legally a homeowner - you just own a home with a lien attached to it. How Can I Find Out if I Qualify for a Mortgage? The most important factor involving this is your debt to income ratio, which is your minimum monthly debt divided by your total monthly income. This is something that we at BartonHarrisCo.com can assist you with in order to determine whether or not you will qualify for a mortgage. Can I Borrow as Much Money as I Want? Not exactly. When you end up borrowing more money than you can actually pay back, this is what's referred to as a sub-prime mortgage. It's always important to first look at how much you are actually able to spend because your monthly mortgage payment should always be comfortable, even if it's a stretch. Your lender will take the time to examine your total income, savings, and debt. They are also required by law to demonstrate your overall ability to repay a loan. This is what determines exactly how much money you can borrow altogether. What is the Best Kind of Mortgage to Get? This all depends on both you and what your goals are for purchasing a home. For instance, it depends on whether or not you plan to stay in the home forever. This will be what determines whether an adjustable-rate mortgage or fixed-rate mortgage is the best one for you. What is a Good Interest Rate? Many rates that you often see in advertisements are for loans that you likely won't qualify for. This means that you need to take the time to research. Actual interest rates var by the location in which you live, and they can also change daily. Furthermore, they also vary depending on factors that include credit score, debt, and income. What Does PMI Stand For? PMI stands for private mortgage insurance, which is typically required if you put down an amount less than 20 on your home. It's also something that protects the lender in the event that you default. The cost and the methods to get rid of this varies. Are Prepayment Penalties Real? Yes. There are actually some lenders who will charge you a penalty if you pay everything off too early. These penalties generally apply for a certain period of time, typically 1-3 years after the loan has been issued. Why is a Percentage Different from an APR? The APR, or annual percentage rate, includes both points and fees that are due to arrive at an effective annual rate. This is actually the best way to compare what each lender is offering as opposed to a more traditional percentage. What is Amortization? Why Should I Be So Concerned About It? Amortization refers to what you are actually paying per year against your loan. In other words, you pay every month and the principal amount will decrease until the loan itself is fully paid off. The payments themselves will never change; however, at the beginning of the term, the majority of the payment will be going towards the interest. Near the end of the term, this is flipped, meaning you will then be paying down the mortgage principal. What Are Points? One points is equivalent to 1 of your loan. A lender may choose to offer to sell you a certain amount of points in exchange for an interest rate that is lower. It makes more sense to buy points depending on exactly how long you plan on keeping your mortgage. What is Considered to Be a Good Credit Score? Here is a basic explanation of how credit scores work: *Excellent: 720 or higher *Good: 660-719 *Fair: 620-659 *Poor/Bad: 619 or lower If you have any further questions please feel free to contact us right away. We would be more than happy to answer any further mortgage questions.