Home Finance Everything You Need to Know About Mortgage Loans

Everything You Need to Know About Mortgage Loans

by Purva Jagtap
Everything You Need to Know About Mortgage Loans

A demand for homes and a lack of supply created intense circumstances for homebuyers in 20201. The beginning half of 2021 saw the housing market hit a fever pitch. 

But the second half of 2021 is painting a different picture. Homes are still in high demand, but the supply is not so sharply lacking. And mortgage rates still continue to benefit homebuyers.

If you are looking at buying a home, a mortgage loan is something you very likely cannot avoid. If you are a first-time homebuyer, mortgages can be especially intimidating. But first-time homebuyers have nothing to fear.

Historically low mortgage rates make this the perfect time to secure a home loan. And with our tips about the mortgage loan process, a new house is not so out of reach.

What is a Mortgage?

In the simplest of terms, a mortgage is a loan specifically for a house. The caveat is that if you fail to pay your mortgage plus any interest, the lender has a right to take your home.

It sounds scary, and sometimes it can be. But for some, a mortgage is actually a cheaper alternative to paying rent. Instead of getting evicted from a rental, they put money towards owning a home.

Like any decision, there is a certain level of risk associated with a mortgage. For most, bank loans are an unavoidable part of owning a home. The mortgage is a literal agreement between you and a bank to protect the bank if you fail to make your payments.

However, the mortgage is also designed to help you out. Some people have the luxury of paying cash for a home, but most are not able to do that. Applying for a mortgage is one way to fulfill your dreams of owning a home without trying to pull together crazy amounts of cash.

Types of Mortgages

There are two major mortgages you will generally see as you begin your homeownership journey: a 30-year and a 15-year.

A 30-year loan is typical for most homebuyers. The monthly mortgage payment is much lower, since the life of the loan is stretched out over thirty years. However, you will accrue more interest over the life of a 30-year loan than you would in a 15-year.

A 15-year loan allows you to pay off your loan at a quicker rate and with a better deal on interest. However, the payments each month will be much higher than those of a 30-year loan. You can expect to pay about double in mortgage payments each month.

Why Do You Need a Mortgage Loan?

In a perfect world, everyone would be able to pay cash for their homes, own them outright, and never have to worry about mortgages.

But since this is not a perfect world, a mortgage becomes a life necessity for the majority of homeowners. A mortgage allows you the chance to buy a home without having to front up the cash. 

Another reason you may want a mortgage depends on what kind of investments you are making. If you are lucky enough to have a significant amount of cash on hand, but have another property to invest in, mortgaging one and buying another offers a tidy solution to a complex problem. 

Ways to Get the Best Rates

If you are new to the housing market, you may have heard that 2021 has some of the lowest mortgage rates in years. But what does that mean?

A mortgage rate is the same thing as an interest rate, just specific to your mortgage. Some mortgages have a locked-in rate; others are flexible. Your rate will depend on some personal finance records, plus current rates across the country.

There are several ways to ensure you are getting the best rate for your situation. Let us cover just a few of those ways.

Shop Around

First and foremost, do not just settle with one mortgage rate. Get several quotes from several different banks and institutions such as the USDA loan program. Check the usda home loan map to know the areas that are qualified for this type of loan. This allows you to compare what kinds of rates you qualify for.

The lowest rate may not be the best for you. You may find that working with one particular bank was such a good experience that you want to finance through them. Even if it is not the very lowest rate you received, the value lies elsewhere.

However, if savings are of the utmost priority, then comparing several lenders allows you to find the lowest rate possible. Most banks offer these rate quotes free of charge, as well. Just be sure you are aware of any costs before requesting a rate.

Compare Online

Comparing rates online is one of the easiest ways to get a sense of the rate on your mortgage loan. There are plenty of websites, like Farmers Bank, that offer easy-to-navigate information. Some sites even have mortgage rate calculators and other information.

Looking at several lending institutions at once can be the quickest way to secure a mortgage rate you can manage. Take advantage of free quotes from websites so you are not overwhelmed by trying to find lenders on your own.

Consult with Experts

When all else fails, experts are your best bet.

If you are working with a realtor, ask them for advice on finding the lowest rates. They may not be able to offer specifics about the mortgage process, but they have enough experience to point you in the right direction.

They may be able to offer some suggestions for lenders, or state-specific programs that can help you further understand the mortgage process.

Learn More About Buying a Home

The mortgage loan process does not have to be intimidating.

Unless you are an expert, most individuals know very little about mortgages, and that is perfectly acceptable. The trick is knowing the right resources to call upon so your mortgage process goes as smoothly as possible.

If you are buying your first, second, even third home, visit our website. We have a variety of articles covering the homebuying experience, expert advice, and plenty of tips and tricks for making the process as smooth as possible.

Check us out today! You will not regret it.

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