Are you dreaming of owning a home and having a place to call your own? Whether you’re looking to live in a neighborhood you love, closer to more amenities like entertainment and shopping, or in a home with a yard for your children (and dog), the idea of homeownership is very exciting. As a potential homeowner, you also probably have a few mortgage questions.
For most people, buying a home includes getting a home loan and making monthly mortgage payments to your mortgage lender. Getting a mortgage is a complex process, so it’s important to do your research and prepare yourself with as much knowledge as you can.
Here are a few mortgage questions to ask yourself (or your mortgage lender).
Use Mr. Cooper’s mortgage calculators to determine how much house you can afford and to calculate a potential monthly payment amount that fits your budget. Consider setting up a time to speak with a mortgage pro about your potential options for a home loan.
Your credit is one of the most important factors of the mortgage application process, because it generally has some influence on what loans might be available from various lenders. The higher the credit score, the more options available. Before you apply for a mortgage, check your credit score to avoid any surprises.
A 15-year mortgage is likely to have a higher monthly payment than a 30-year mortgage, but its shorter term could also potentially enable you to pay off your loan and own your home faster. Paying off your home loan sooner can be a plus because, once you own your home, you could spend money once designated for your mortgage payment on other things.
A 30-year mortgage allows for a lower monthly payment than a 15-year loan, simply because borrowers have a longer time period to repay the loan. This type of loan can be a great option for people who plan to stay in their home for a long time, or those who are interested in greater affordability.
As you compare home loan options, it is important to understand interest rates. Each month, you’ll pay back a portion of the principal (the amount you have borrowed to buy your home) plus interest accrued. Lenders use an amortization formula to determine how much of your monthly payment is principal and how much is interest. It’s always best to talk to your mortgage lender to find out what interest rates are currently available.
Getting pre-qualified for a mortgage is a great first step toward understanding all of the home loan options available to you. During the pre-qualification process, you’ll outline your home buying plans to a mortgage professional and gain access to more home listings and home buying tools.
Some lenders might require you to pay your property taxes through an escrow account. Check with your mortgage lender about how taxes are handled with your mortgage.
In its most basic form, a monthly mortgage payment includes principal and interest. In addition, some mortgage lenders might require you to pay property tax and home insurance premium into an escrow account. Mortgage insurance may also be required, and would also be included in your monthly payment.
If you talk to your mortgage lender and find that current rates are lower than the rates on your existing home loan, then you might want to consider refinancing your mortgage to reduce your monthly payments. You might even be eligible for a cash-out refinance of your home loan, if you have home equity built up.