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Mortgage Basics: What You Need to Know About Getting a Mortgage

July 16, 2020
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Purchasing your dream home shouldn’t be complicated. But with all the mortgage types, acronyms, required documents, and multitude of numbers thrown at you, it can get a little confusing. We connected with our loan experts at loanDepot, Kelly Crowther and Richard Hedrick, to give some insights and advice for simplifying the mortgage process.

What is a mortgage?

A mortgage is a debt instrument, secured by real estate as collateral. As a borrower, you are obligated to pay back the mortgage—or “loan”—with a predetermined number of payments. To put it simply, a mortgage is a type of loan that you can use to buy or refinance real estate. Mortgages are a critical piece of the equation, given that most people are unable to pay cash for such a large purchase.

What is the step-by-step process of getting a mortgage?

The process of getting a mortgage can vary from lender to lender depending on your financial situation and the type of home you are purchasing. In general, the start-to-finish mortgage process looks something like this:

1. Find a mortgage professional. You’ll want to start working with a professional early, so don’t wait until you have found the perfect house. The right mortgage professional will guide you through all possible outcomes of the mortgage application process and will gather information to counsel you on your available options.

2. Define your goals. Determine your budget and create a list of “needs” and “wants” that you can use to help you find the home of your dreams.

3. Choose the loan that’s right for you. Your mortgage professional can guide you to determine which type of loan (fixed-rate, adjustable-rate, JUMBO, or government) is best for your situation.

4. Get approved. Your mortgage professional will coordinate with all the necessary parties to ensure your loan is submitted properly to the underwriter for approval.

5. Organize and submit your documents. You may need to provide items such as pay stubs, credit information, mortgage statements, and employment history with your mortgage application.

6. Close your loan. After getting final approval from your lender, you can schedule your loan closing appointment and begin the process of moving into your dream home.

Exterior street view of Brookfield Residential Union Park neighborhood in Austin TX

What are the different types of mortgage loans?

There are many different types of mortgages. Some are designed for first-time buyers, while others are intended for buyers looking for custom homes or investors hoping to generate wealth through their real estate purchase. Some of the most common types of mortgages are:

Conventional loans. This is the most common kind of mortgage and includes many different options, some of which offer low down payments.

FHA loans. FHA loans are insured by the Federal Housing Administration and may include more flexible options or features that conventional loans may not offer.

VA loans. This type of loan is offered exclusively to U.S. military veterans. It typically has lower requirements for qualification than a conventional loan.

JUMBO loans. These are meant to be used for more expensive properties that do not fit into the other product options.

How is my borrowing amount determined and how do I qualify?

The amount that you are able to borrow will be determined during the pre-approval and approval process. You should consider early on in your home search how much of a monthly payment you would be comfortable paying. From the lender’s perspective, the amount you are approved to borrow will be relative to your income.

Keep in mind that your total payment will include the principal and interest payments (P&I), real estate taxes (these vary based on the property and amenities), homeowners insurance (protecting you against unforeseen damages or liability), and finally, any homeowners association fees (which may or may not apply, based on the property you buy). With these payments in mind and an understanding of how much money you have available for a down payment, the lender will determine your loan amount and the approximate price of property you can afford.

How long do I have to pay back my loan and at what rate?

Typically, mortgages are 30-year loans, but you can pay off the mortgage early without penalty. The interest rate is determined by the current market and is readily found online or by consulting a mortgage professional. A trusted mortgage professional can act as a guide and help you find the best rates available.

Exterior of Brookfield Residential's Stella neighborhood at the Groves in Whittier CA

How much do I have to put down for my mortgage?

Down payment amounts vary widely depending on the type of home you are purchasing and your financial situation. Depending on your qualifications, you could be eligible for programs that include grants or down payment assistance, which can allow you to purchase your first home without a down payment. Don’t forget that even if you purchase a home with a low down payment, there are closing costs to be paid as well. If you do have savings, increasing your down payment can reduce your monthly mortgage payment. Again, seek a trusted mortgage professional to begin exploring the best options for you.

What should first-time homebuyers keep in mind?

The loan experts at loanDepot recommend exploring your options early. Review your credit, know what you type of payment are comfortable with, and seek a referral to a trusted mortgage professional to guide you through your options. Their help should come at no extra cost to you.

Buying a new home and getting a mortgage doesn’t need to be complicated. Find your dream home with Brookfield Residential and follow the guidance of the loan experts at loanDepot and you’re sure to have an easy homebuying experience! To learn more about the process of becoming a homeowner, request more information today.

 

*This blog was created in collaboration with loanDepot NMLS 174457, a United States based mortgage company. 

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