MORTGAGES

A mortgage is a loan specifically used to purchase real estate. The property itself serves as collateral for the loan. Typically, the borrower agrees to repay the loan amount and interest over a specified period, usually ranging from 15 to 30 years.

The most common types of mortgages include:

• Fixed-rate Mortgages offer a consistent interest rate and monthly payments throughout the life
  of the loan. Common terms are 15, 20, or 30 years.
• Adjustable-Rate Mortgage (ARM): Features an interest rate that can fluctuate based on market
  conditions. ARMs often start at a lower rate and adjust periodically.
• FHA Loan: Backed by the Federal Housing Administration, these loans are designed for low-to-
  moderate-income borrowers with lower credit scores and smaller down payments.
• VA Loan: Available to veterans, active-duty service members, and certain military families, these
  loans are backed by the Department of Veterans Affairs and offer favorable terms such as no
  down payment.
• USDA Loan: The U.S. Department of Agriculture offers these loans for rural and suburban
  homebuyers who meet specific income requirements and provide no down payment.

To qualify for a mortgage, lenders typically evaluate:

• Credit Score: A higher credit score can help secure a better interest rate. Most lenders require a
  minimum score, which varies by loan type.
• Income: Lenders assess your income to ensure you can afford the mortgage payments. They
  typically require proof of steady income and employment.
• Down Payment: A percentage of the home's purchase price you pay upfront. Conventional
  loans often require 20%, but other types, like FHA loans, may require less.
• Debt-to-Income Ratio (DTI): The ratio of your monthly debt payments to your gross monthly
  income. Lenders use this to assess your ability to manage additional debt.
• Assets: Your savings and other assets are reviewed to ensure you have enough funds for the
  down payment and closing costs.

Mortgage points are fees paid upfront to reduce the interest rate on your mortgage. Each point typically costs 1% of the loan amount and can lower your interest rate by about 0.25%. Buying points can be beneficial if you plan to stay in your home for a long time, as it can reduce your monthly payments and overall interest costs.

Closing costs are fees and expenses associated with finalizing a mortgage. They typically include:

• Origination Fees: Charged by the lender for processing the loan.
• Appraisal Fees: For evaluating the value of the property.
• Title Insurance: Protects against potential issues with the property’s title.
• Inspection Fees: These are for checking the condition of the property.
• Property Taxes and Insurance: Prepaid property taxes and homeowner’s insurance amounts.

Closing costs usually range from 2% to 5% of the loan amount, though this can vary based on location and the transaction specifics.

A mortgage pre-approval is a process where a lender evaluates your financial situation and determines the loan amount you are eligible for before you start house hunting. It involves a thorough review of your credit, income, and assets. Pre-approval is essential because:

• It Shows Seriousness: Sellers see pre-approved buyers as more severe and financially capable.
• It Helps Define Your Budget: Knowing your pre-approved loan amount helps you set a realistic
  budget for home shopping.
• It Speeds Up the Process: With pre-approval, you can close on a home more quickly once you
  make an offer.