Purchasing a home is an exciting milestone in American life, but securing a mortgage loan to finance it brings its fair share of challenges. From complicated terminology to stacks of paperwork, the process can easily become overwhelming for first-time home buyers. 

However, grasping key aspects of the most common types of mortgages, from fixed-rate to adjustable-rate, helps demystify the home-buying experience. Also, understanding what lenders evaluate when considering borrowers for pre-approval enhances your decision-making. 

Ready to compare mortgage rates in Georgia and get the keys to your dream house? Read this guide to get started.

What Is A Mortgage 

A mortgage is simply a loan you can use to finance a real estate purchase, with the property acting as collateral. The mortgage lender, usually a bank, finances the purchase of your house while you make monthly payments towards repaying the loan plus interest over a set period. 

If you can’t make your mortgage payments, the lender can foreclose on the home, take ownership of it, and sell it to recover their investment. For this reason, lenders want to ensure borrowers can manage mortgage payments before approving loans.

Here are the common mortgage options offered by most lenders:

• Fixed-rate mortgages: Fixed-rate mortgage loans have consistent monthly payments because the interest rate never changes, hence providing reliability in budgeting.
• Adjustable-rate mortgages (ARMs): ARMs start with a fixed rate for a set number of years and then convert to a rate that adjusts periodically based on market indexes. Payments can go up or down depending on the current economic atmosphere.
• Federal Housing Administration (FHA) loans: FHA mortgages require a lower down payment and credit scores compared to conventional loans. The government, through the FHA, insures FHA-backed mortgages. This type of home loan is ideal for first-time and low-income buyers.

Evaluate all options to determine the best mortgage type for your situation.

Getting Pre-Approved

One of the most important steps before setting out to purchase a home is going through the pre-approval process. Being pre-approved for a mortgage involves meeting with potential lenders, like banks and mortgage brokers, to evaluate your financial history and credit score in depth. 

The lender utilizes this information to make an early determination of the loan amount you qualify for. Once pre-approved, you receive a letter stating the pre-qualification mortgage amount. This is critical when house hunting because it informs your price range and demonstrates to sellers just how serious and financially prepared you are as a buyer.

The Down Payment

Making a down payment is required for most mortgages and involves paying usually between 10-20% of the total home value upfront from your personal savings. The benefit of a sizable down payment is that it allows you to pay lower private mortgage insurance premiums. On a conventional loan with less than 20% down, this additional cost gets tacked onto your monthly payments. 

Putting down more money upfront also builds immediate equity and leads to paying less over the full loan term through reduced interest. First-time homebuyers often put down less than 20%, though. Either way, be diligent about saving for your down payment far in advance. 

Closing Costs That You Should Know About

Closing costs are the fees and expenses beyond the down payment required to finalize the mortgage transaction. These costs are generally between 3-5% of your total mortgage loan amount. 

Typical closing fees include appraisal fees, credit report charges, attorney fees, title insurance, recording fees, transfer taxes, pre-paid interest, home insurance, and more. It’s easy for this myriad of items to add up. 

So, make sure you get an itemized estimate of expected closing costs from your lender early in the process so you can accurately budget for them. Keep in mind that they can be rolled into the total mortgage loan amount rather than being paid upfront if needed. 

Finding The Best Home Loan Rates 101

Interest rates for mortgages and fees can vary significantly from one mortgage lender to another, even if comparing loans with identical terms. As such, take the time to gather rate quotes from several potential sources – banks, credit unions, and online lenders – when mortgage shopping. 

You can use online tools to compare initial rates side-by-side. But make sure to follow up and ask lenders detailed questions to understand all the nitty gritty facts and fees for their loans before deciding. Consider overall closing costs in addition to the starting interest rate when determining the best-fit option. 

Finding optimal mortgage terms for your situation saves thousands over the lifetime of the loan. Don’t rush into choosing the first option presented without exploring what other lenders have to offer.

In Conclusion

Getting a mortgage to finance buying a home is a major financial move involving many intricate steps. Nevertheless, grasping the core aspects of the process ahead of time, like common loan types, qualifying factors, and closing costs, ensures you’re informed and prepared. Shop multiple lenders and loan programs to secure the most favorable mortgage rates and terms for your budget and goals. 

Investing involves risk and your investment may lose value. Past performance gives no indication of future results. These statements do not constitute and cannot replace investment advice.