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Mortgage Shopping Essentials

Buying a home is a big commitment – that’s why you should cover every financial base before agreeing to a mortgage. Need some insight on what to look for when considering a house? Review this list of mortgage shopping essentials to prepare yourself (and your bank account!) for becoming a homeowner.

Mortgage payments come in many shapes and sizes depending on the lender. Knowing which type you’re interested in can help determine how much you’ll be paying. 

Most mortgages are defined by being fixed or adjustable. The interest rates of a fixed mortgage will stay the same the entirety of the mortgage, whereas the adjustable mortgage’s interest rates will change as the market does. Both mortgages types can either be conventional conforming or noncomforming. Conventional conforming loans are defined by Rocket Mortgage as, “a loan that’s not insured by the federal government.” These loans can be fixed or adjustable and are the most common mortgage you will run into. 

Nonconforming loans are government backed loans, and are ideal for borrowers with lower income, savings and credit scores. This includes mortgage types like FHA’s and VA’s. FHA’s are backed by the Federal Housing Administration and VA’s by the Department of Veterans Affairs that operate under certain qualifications for borrowers. These mortgage types tend to have lower down payments and interest rates, and are more accessible to those with credit issues. 

Young couple closes on house by signing official document with financial counselor.

Making loan payments is a crucial step to home owning. You should agree to a payment period that is realistic for you to prevent late or insufficient payments. The average mortgage payment is due every month at the same rate during the allotted time it will take to pay the loan off (think between 15 and 30 years). Balloon payments, on the other hand, are a mortgage payment that starts with a smaller interest rate and ends with a large amount upfront to pay the rest in full. Because of this, the payment period is shorter than average.

How often do you think you’ll be able to make your mortgage payments? Monthly payments are most common, but some lenders also offer weekly, biweekly and semimonthly payment plans depending on the circumstances of the borrower.

Smiling woman calculates payment costs on table with documents spread out.

Credit and the current housing market typically determine a borrower’s interest rates. So what can you do to make yourself appealing to lenders and secure a house? Rocket Mortgage explains, “While you can’t control market rates, you can have some measure of control over how a lender views your application. The higher your credit score, the more assured a lender will feel that you can repay the loan with on-time payments.” A good credit score coupled with minimal debt history and a steady income is a great start to preparing yourself for securing a mortgage.

House sits on street during a sunny day with a For Sale sign on its front lawn.

Mortgages also come with insurance. PMI, or private mortgage insurance, is paid when their down payment is less than 20%. PMI’s usually cost somewhere between 0.2%-2% of your total loan amount, and can be paid on a monthly basis like your mortgage payment, in a lump sum, or a combination of the two. 

MPI’s, or mortgage insurance premium, are more common with nonconforming loans and are paid upfront. If borrowers put down at least 10% of your down payment, then you’ll only owe MPI payments for around 11 years. Anything less than 10% of your down payment, however, will mean paying MPI costs for the rest of loan’s payment period. 

It’s also important to factor in the cost of your Escrow – that is, the funds collected each month to cover real estate taxes and homeowners insurance. 

Financial counselor helps client with paperwork for owning a house.

Other than the initial loan payments, some extra costs include application fees, closing costs, potential prepayment penalties, as well as aforementioned costs such as insurance, escrow and interest. Your budget should include these costs when looking for a home.

Young woman uses calculate to calculate budget with her savings in a piggy bank.

Owning a home can be a thrilling experience, especially to those who are new to it. While the process can be intimidating and lengthy, learning about each step can make things go smoothly. Through our partnership with First Heritage Financial we offer our members multiple rates to make their home owning dreams a reality. Do you have any questions related to loan payments/home ownership? Give our loan office a call or schedule an appointment and we’ll help you every step of the way! 

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