Most home buyers, even beginners, know that you don’t settle on the first home you find. You’re meant to shop around. Something else Gresham home buyers may not know, however, is that it’s wise to shop around for a mortgage, too. Finding the right mortgage loan is incredibly important. Choosing your mortgage has a big impact on your finances for the foreseeable future.
Gresham home buyers should consider all of their mortgage options before settling on just one. Here’s a quick guide to understanding mortgages as you start shopping around:
The Stages of a Mortgage Application
- Pre-qualification: Before shopping for a house, Gresham home buyers should get a mortgage pre-qualification letter. In today’s competitive housing market, a pre-qualification letter lets your Realtor and other potential sellers know that you are serious about looking for a home. It acts as an assurance that you have the ability to by the home you are interested in. Remember that having a pre-qualification letter does not mean you’re approved for a mortgage. These letters informal and optional, but they just might ease sellers’ fears that financing will fall through if they accept your offer.
- Pre-approval: Gresham home buyers can get mortgage pre-approval after putting an offer on a home. Getting a pre-approval involves submitting a mortgage application to the bank. The bank will run your credit and research the home you want to buy. If you meet qualifications, they’ll give you pre-approval. This means that if all the conditions are met, the bank agrees to finance the home.
- Closing: This is where the mortgage is finalized and you become a homeowner.
The four most common types of institutional mortgage loans include conventional, FHA, VA, and jumbo mortgages. Gresham locals looking to buy a home should first research which types of loans they qualify for and which would be best suits your needs. Each type of loan has benefits and drawbacks.
- VA loans are guaranteed by the Department of Veterans Affairs. VA mortgages require as little as no down payment, but they are only available to qualified veterans.
- FHA loans are backed by the Federal Housing Administration and require as little as 3.5% down if you qualify. For Gresham home buyers who have trouble putting back savings, this can be a good option. The drawback, however, to putting less than 20% down payment is that you will be required to pay private mortgage insurance (PMI), a monthly payment used for security in case of default.
- Conventional mortgages require at least 20% down and don’t require PMI. Generally, a conventional loan the best choice for Gresham home buyers who have enough money in savings to cover the down payment and associated closing costs.
- Lastly, jumbo mortgages must be used if you are financing more than conventional conforming loan limits. Due to their amount, these loans have special restrictions and credit requirements.
Your repayment term is the term over which you pay back your mortgage. The two choices Gresham home buyers have for repayment terms include a fixed interest rate mortgage, where the interest rate remains the same over the life of the loan, or an adjustable interest rate, where the interest rate can decrease or increase at specific intervals such as annually.
- Fixed-rate mortgages tend to be a safer option, especially for Gresham families who plan on staying in a home for more than a few years. There are many different mortgage terms to choose from, such as mortgage terms of 15, 20, or 30 years. 30 years is the most common mortgage rate terms and keeps your monthly payments low. However, while monthly payments on a 15-year mortgage are higher, you ultimately save money because there is less interested accrued over 15 years than over 30.
- Adjustable-rate mortgages can save you a lot of money if you play on living in the residence a short time. Your interest rate is much lower than a fixed-rate mortgage for the first five or seven years, but will then adjusts to the average interest rate every year thereafter, which could be much higher. If you still own the home, your mortgage payment could go up dramatically, so it is riskier.
Stonebridge Mortgage Group Offers Guidance on All Mortgage Matters
Stonebridge Mortgage Group serves the greater Portland area and is located in Gresham, Oregon. Don’t wait to get quality assistance with buying your home!
Call us today at 503.661.5580