4 Most Common Mortgage Questions Answered
When it comes to something as important as taking out a mortgage, you want to make sure you are making the best decision for your situation. If you are confused, here are 4 of the most common mortgage questions answered to help you understand.
Q: How much money should I put down on a house?
A:There is no set amount that you should put down when purchasing a house since the prices of houses can vary. That said, there are loans that require as low as 3% down all the way up to 20% down. Be aware that the lower the down payment on the loan, the higher the interest rate will be, so it is in your best interest to put down a larger down payment. Along with the down payment, you will also need to be able to cover closing costs. These fees cover the house appraisal, inspection, the cost of lawyers, the cost of the title search and insurance. Usually closing costs are approximately 5% of the loan value.
Q: How do I know if I will qualify for a home loan?
A: There are a variety of ways that you can qualify for a home loan. Even if you have a poor credit history, that does not necessarily mean that you will not able to get a loan. While poor credit can cause you to have a higher interest rate, there are other factors that can improve your chances of approval. Your credit score is a large part of securing a loan, but if you have a large deposit it can do a lot to mitigate a low credit score. Additionally, having a solid rental history can help offset a poor credit rating. Other factors that can affect your chances of being able to secure a loan include your current salary, how much outstanding debt you owe and how large the loan you are requesting is.
Q: Do I need a fixed rate or an adjustable rate mortgage?
A: The simplest of the two types of mortgages is the fixed rate mortgage, and it is simply a mortgage with a fixed rate of interest over the course of the loan. The advantages of this are that you are not tied to a possibly volatile market and that these types of loans are fairly simple to understand and keep track of payments on. The advantage of the adjustable rate mortgage is that they offer the possibility of a much lower interest rate than a fixed rate loan; however, they also are a bit of a gamble. Depending on the financial index your loan is tied to, your mortgage payment could go up drastically over the life of the loan.
Q: Should I use a real estate broker?
A: A real estate broker is not required to purchase a house; however, if you are a first time home buyer it can be a good idea to use one. While you will be required to pay their fee, which is usually a percentage of the price of the home, if you are unsure of the paperwork and inspections involved, it can be helpful to have someone experienced with the process on your side. That said, be sure that you find a good broker; looking at online reviews and asking friends and family for their recommendations is a good idea. If this is not your first time purchasing a home, you may be familiar enough with the process to do it and save the expense of hiring a real estate agent.