So you want to buy a house, and you know you’ll need to get a loan to be able to do so, but the steps from here to there are a little foggy. No fear! I am here to let you in on 4 mortgage secrets that you should definitely know before moving forward in the home buying process. These secrets will help you know exactly what you’re getting into as you look for a mortgage lender and choose the right mortgage for you.
Secret #1: Find a Reputable Mortgage Lender
If you’ve never gotten a mortgage loan before, your first instinct might be to go to your bank to get a loan. Using your bank is certainly one way to get a mortgage, but when you’re buying a home, you want someone to go above and beyond for you. Your real estate agent will have worked with many mortgage lenders and will know the difference between a so-so lender and an excellent one. Use your resources and ask your real estate agent to refer you to someone they trust if you don’t know who you want to use.
It’s also worth it to talk with two or three mortgage lenders because this is someone you will be working with a lot. So not only are you shopping around for the best rates, but you want to make sure you’re working with someone you get along with.
Once you pick someone, what will make the process easier for everyone involved is if you gather things like pay stubs for the last 2-5 years, W2s, and any other proof of employment and income. The lender will need to pull your credit to see your borrowing ability, and having these documents in order helps the process go more smoothly.
Secret #2: Think About Your Monthly Payments
I talk about this more in my 10 Steps for Buying a Home in Northern Colorado video, but it’s important to be realistic about what your monthly payment could be without stretching yourself too thin. Instead of looking at the numbers like, “how can I afford a $500,000 house?” take a look at your monthly budget and see what you could afford each month. Your budget takes into account your monthly income and other monthly expenses.
If you don’t already have a budget, I highly recommend the tool You Need a Budget. This will help you get started and figure out what you can afford to spend each month on a house payment. You can share what you come up with with your lender, and they can use that monthly payment to help inform what kind of mortgage is right for you.
Secret #3 Think About the Long Term
Most mortgages are essentially a 30-year agreement to pay for the house you just bought. If that 30-year commitment stresses you out, talk to your lender about the options available for shorter-term mortgages. Ten, 15, and 20-year loans are all options and lessen the time commitment.
Also, keep in mind that most people aren’t taking the entire 30 years to pay off their homes. They refinance at some point and get into a shorter loan, pay the loan off early, or they’re moving within 5-7 years and pay off the loan when they sell the house.
If you cannot make the monthly payments of a shorter-term mortgage work, you can always pay your loan off early by just adding an additional $50-$100 a month towards the principle of your loan.
Secret #4 Understand Your Mortgage Payment
You may or may not know that your mortgage payment will include four different things—not just the principle amount of your loan. We call it “PITI.”
- P stands for “principle”—the amount of the loan that you took out in order to buy your home that adds up to the total cost of your home over the life of the loan.
- I stands for “interest”—like any loan, your home loan accrues interest throughout the life of the loan, so you also pay interest with each payment.
- T stands for “taxes”—you do have to pay property taxes for your new home, but thankfully, this isn’t a separate payment you have to keep track of. Your yearly property taxes are split up and included in your monthly mortgage payment and then put into an escrow account that pays off your taxes each year.
- I stands for “insurance”—you have to (and want to) have homeowners insurance, but again, instead of having to make an extra payment for this, it’s just rolled into your mortgage and paid out to your insurance provider from there.
If you have any questions about mortgages, buying, or selling a home, please reach out! Feel free to call or text me at (970)685-9460. And if these videos are helpful for you, don’t forget to subscribe to my YouTube channel!
I'm Lauren Haug! I'm a teacher-turned-real estate agent, and I teach people how to build wealth through real estate in Northern Colorado.
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