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Mortgages Explained
Simply put – A mortgage is a loan someone gets to buy a property: Typically a house or condo.
Picture this. You just started the home buying process and you found the perfect property for you. It’s the neighborhood you want, it has the finishes you love, it even has your favorite flowers growing in the front yard. You check your pocket for money to buy it, but there isn’t close to enough in there. It is time to get a mortgage loan.
👉 A mortgage is a financial device that allows you to buy a property over time – typically 30 years.
Let me give you a simple example to explain the mechanics of this:
Your perfect property cost $100,000. To buy this property, you need to make a down payment. Generally the minimum down payment requirement is 3% of the purchase price. Cool, that means you need at least $3000 in the bank to buy this property.
How to Get a Mortgage
The first step would be to speak to a mortgage broker/lender/banker – basically the same thing. Your money person. They are going to do is look at your financial situation. These are things like:
- How long have you been at your job or in your field?
- What is your credit score?
- Do you have any existing loans?
- What is your income?
- How much of a down payment do you want to make?
If you are curious:
- A two year minimum of work experience and at least six months in your current job or position are generally needed.
- The absolute minimum credit score one can have is a 500. This would be for a Federal Housing Administration (FHA) Loan with a 10% down payment. For a conventional loan (most likely you) a minimum credit score of 620 is needed.
- Existing loans would be car loan, boat loan, student debt, credit card debt etc..
Side note: Talk to a lender even if you are concerned about your finances. They can help you get on track! My lender helped me boost my credit score by 100 points in one year. Totally serious.
What it Looks Like in Practice
Back to our example of the $100,000 home: I used this mortgage calculator to figure out payments.
On face value, the loan amount would be $97,000, at an interest rate of 7.467%. This would give you a monthly payment of $676. However – you will be paying more than this.
A common mistake people make when looking at homes and figuring out payment is they only consider the cost of the home. They do not factor in the cost of taxes and fees. When you add these, the payment jumps to $867 a month! Below is a screenshot of what I used. The mortgage calculator link will take you to the same page. Make sure to click “Include taxes & fees.”
The government wants their fair share! I don’t make the rules, I just report them.
In Conclusion
That’s the simplest explanation I can give you of a mortgage. Of course, there are many other factors that might impact your personal situation such as are you veteran? You could qualify for a 0% down home loan. That’s amazing! Another thing that could impact your loan is are you going to be getting an agricultural loan? There’s great programs out there for those.
At the end of the day, the most important thing for you to do is to find a lender you like. You can message me to find one or read this article right here.
