The 4 Steps & 3 Components of Mortgages
Many who are considering refinancing (to take advantage of epic, sub-3-percent interest rates) or taking out loans for new homes want to better understand mortgages.
The basic steps you want to take in considering a mortgage application include the following:
1. Look at the actual numbers. — Prepare your budget by looking at all homeownership expenses, not just the mortgage payments.
2. Polish your credit. — It is very much to your benefit to get your credit score as high as you can, in part by rectifying any errors.
3. Find a mortgage. — A strong mortgage loan officer will get you an incredible rate. However, you will have decisions to make in terms of the loan term and type. Conventional loans make up the bulk of the mortgage market. However, special mortgages may be available to you if you have a particular situation, such as being a first-time homebuyer. These types of special loans are offered by the US Department of Veteran Affairs, state governments, the US Department of Agriculture, and the Federal Housing Administration. We work with all these mortgage types.
4. Work with your mortgage. — As you live in your house and pay down your mortgage, two other financing options become available. One is the option to take out a home equity loan. The other is refinancing the mortgage — which many people are doing now, given the historically low average rates (30-year fixed-rate mortgage at 2.77 percent; 15-year fixed-rate mortgage at 2.1 percent).
How a mortgage works – 3 components
The three primary components of a mortgage are the down payment, monthly payments, and closing costs:
Down payment — You initially secure a mortgage with a down payment that is presented upfront. You will score better terms with a loan, including a lower interest rate, if your down payment is larger. You additionally pay less in fees with a larger down payment, and you establish more equity.
Monthly payment — Your monthly payment will go toward the interest as well as the principal. This minimum payment allows you to pay the loan off on the predetermined schedule. The monthly payment may include fees such as property taxes.
Closing costs — In order to initially get the loan, you will have to pay closing costs.
Get your best rate
Are you applying for a new mortgage or refinance? The time is right, with average rates almost shockingly low. At Best Advantage Mortgage, our Minneapolis loan officers know the most important part of your mortgage is you. Apply now!