5 Mortgage Fundamentals Every Home Owner Should Know

Hey Guys,

I know I said I'd wait 2 weeks to publish a new blog post, but the anticipation is killing me.

Below is an article I wrote recently that I'd like to share with you all...it's definitely a must read:

What Every Homeowner Should Know About Mortgage Fundamentals

Buying a home is the American dream. With mortgage rates at record lows, first time homeowners are flocking to mortgage brokers looking for a good deal. But buying a home is a serious investment and not something to be rushed. Before you sign on the dotted line, you should know the basics of the mortgage you're about to take on.

Here are some tips that can help you make sense of mortgages.

1. Be sure you can pay the loan back - plus interest. You're borrowing against your home and property - When you get a home loan, your mortgage involves the purchase price - plus the interest. If you fail to pay off your mortgage according to the terms of the contract you sign, the lender (often your bank) can foreclose on the home. Make sure you can realistically make the payments before your borrow!

2. Get pre-approved to get the home you want. Pre-approval is easy to get and involves a brief background and credit check. Some lenders can have a pre-approval decision for you in minutes. Having pre-approval is ideal when your home price offer is competing against others, and you want an edge to help you stand out.

3. Make a sizeable down-payment if you can afford it. The down payment on your home is anywhere from 5-20% of its value (before real estate fees and taxes are applied).

Making a larger down payment often entitles you to "points" which lets you pay a lesser interest fee on the loan. Each point you pay is an additional percent of the mortgage loan. You'll need to decide whether the pay-off is actually beneficial in your case.

4. Know the Two Types of Mortgages. Because of the housing crisis, most mortgages available today are fixed-rate, which means that you "lock in" the interest rate when you apply for the loan, and it remains at that percentage while you pay it down. There are also Adjustable Rate Mortgages (ARMs) that change throughout the length and terms of your loan. ARMs often start off lower than fixed-rate mortgages, but steadily rise over time.

5. Gauge Your Loan Term Realistically. Mortgages often have a set time period that you pay them off on - usually 15-30 years (although 20 and 25 year increments are becoming more popular). The shorter the time frame, the sooner you'll pay off your loan, although your monthly payments will be higher. If you opt for a 30 year mortgage, you'll pay less per month, but the ending cost will be more. Consult your lender to decide on a term that is realistic for your budget.

Whether you're a first time homeowner or you're refinancing, keeping these tips in mind will help you secure a solid mortgage that can help you make the most of your home.

Whichever mortgage type, length and amount you choose, remember that your monthly payment should not be more than 25-33% of your gross monthly income, factoring in additional costs such as homeowner's insurance and property/real estate taxes.

I really hope this post helps all those who took the time to read it.


The More You Know,

Judy O'