5 Things to Know About Mortgages Before Buying a Home

Unless you’ve had a large windfall of cash, or you are looking to replace an existing, owned-outright property with a new one, chances are that if you are in the market for a new home, you’ll need a mortgage. A mortgage, or homeowner loan, is a sum of money lent to you for the sole purpose of buying a property. The loan is also secured against that property, meaning that if you don’t or can’t make payment, your lender can take possession of the property and sell it to recoup their losses. Mortgages are extremely common, and one of the easiest ways of buying a home, although you will still need a deposit as downpayment and to show that you are committed to repaying. 

If you’ve not had a mortgage before, the prospect of getting one can seem a little overwhelming. We’ve put together a list of five important things to know about mortgages before buying a home. 

1 – You Don’t Always Need a Huge Deposit

One of the biggest misconceptions that new/first-time buyers have is that they need a large deposit to be accepted for a mortgage. The reality is that as little as 10% of the asking price of the property can be enough to secure you a decent mortgage. However, since a deposit is a sign of your commitment, the larger the deposit you can offer, the more favorable your application may be to lenders. Paying more upfront also reduces the amount that you will have to borrow, which could save you a considerable sum on interest in the future. If you don’t have a lot of deposit to put down, it’s worth asking if there are any initiatives in your city or state that can help get buyers on the property ladder.

2 – You Don’t Need a Perfect Credit Score

Credit score is definitely important when it comes to taking out a mortgage, but again, it doesn’t have to be perfect for you to be accepted. Credit scoring is used by lenders to determine their risk if they decide to lend to you. It looks at how much debt you have and how much you are reliably paying off each month. If you don’t have too much debt and are paying off what you have regularly and on time, it makes you a more favorable candidate for a loan, and your mortgage may be offered to you with a lower interest rate – which could save you a lot of money over the lifetime of your loan. Many buyers choose to spend time improving their credit score before buying a home, but this isn’t always necessary. 

3 – You Don’t Always Need Two Years’ Employment History

Employment history is also relevant when it comes to getting a mortgage, as your lender will want to know that you are consistently in work and able to pay your bills. Although two years solid employment history is the standard required by many lenders, every applicant is unique and there can be different circumstances to take into account. Don’t rule out applying just because you don’t necessarily have two years’ of employment to your name – speak to your lender and see what they can do. 

4 – You Don’t Necessarily Have to Pay Your Closing Costs

There are always hidden fees involved in buying a home and one of these is closing costs. These refer to things like escrow fees, insurances, home inspections and more, and these can quickly add up and eat into your budget. However, you don’t necessarily have to pay these yourself. You can ask your seller to pay them for you, or in some cases, your lender will cover them and work them into your mortgage. 

5 – Getting Pre-Approved is Always a Good Idea

You don’t have to commit to a mortgage right away either. Most lenders offer a pre-approval process which can be useful to show sellers that you have a mortgage in principle (which makes you more attractive as a buyer), but also to illustrate to you how much you can borrow, what interest rate you’ll pay, how much it will cost you each month and whether there are any ways you can reduce this to make a mortgage more affordable.

To talk to us about mortgages or buying a home, call Phyllis Cyphers & Associates at (714) 323-1175 to reach our office in Indian Wells, California.