header image for blog

THE BASICS OF A MORTGAGE

Alysha Klein
By Alysha Klein - October 19, 2019

The house buying process is both exciting and scary. I am not there yet… mostly because I can’t afford it. But becoming a homeowner can be one of the most rewarding life experiences. Just think about it for a second, you start saving for a place of your own, not a house but a home. Then you go on the hunt and view house after house to see which one makes you say; “This is it!!”.  Next thing you know you are off to complete the buying and mortgage process and finally you are given a set of keys… your keys… to your home. How could you not smile? How could you not be proud that you set out to achieve something, and
 you did it!

So, what are the steps we need to take to achieve this amazing feeling? First things first, we need to know and understand what the road to being a homeowner is, so we need to know the basics.

Save!

For starters, when looking to become a homeowner it’s important that you start the saving process earlier rather than later. The more money you can save, the more it will help you later on down the road. For instance, many buyers want to have a down payment is at least 20% of the purchase price in order to avoid monthly mortgage insurance fees. That could be a lot of money depending upon what you are looking to buy, so the more you save… the more you can put down which will in turn help lower your monthly payments.

Another cost you should be saving for are the closing costs. These fees vary with every mortgage but is needed in order to transfer the ownership from the previous owner to you. One of the many great perks about being a member at Tropical Financial is that if you get you use our Home Advantage program and get your mortgage loan from us, we will give you a rebate at closing that will help with those closing costs. But, I say you save anyway and then the money left over can be for the new home!

Always be prepared for the extras! You never know how your purchase deal is going to go and you never know which fees might pop up during the process. Be sure that you are saving more money than you anticipate so you are not left at the closing table counting pennies. family buying new home

Prepare yourself!

You need to be prepared! That means before you start the home purchase process, check out your credit report and your credit score and see where you can improve. Do you have bills in collections? Pay them off. Do you have tons of late fees? Get up to date on those payments. Did you find fraudulent activity reported? Dispute that and get it cleaned up! By taking the time to view your credit report you can keep the home buying process smooth and easy. Oh and during the home buying process NEVER EVER apply for a new auto loan, or take out a loan or even open up a store credit card. These things can prevent you from closing on your new home. 

Mortgage Types!

There are several types of mortgages to know and be aware of before you start the home buying process. The most common ones are fixed-rate and adjustable mortgages

Fixed-rate mortgages come with an interest rate that remains constant over the life of the loan. 30-year mortgages are the most common, but you may also choose a 20-year, 15-year, and even 10-year fixed-rate mortgage. In certain high-cost areas some mortgage lenders are even offering 40 year-loans. Though the mortgage interest rates tend to be higher than for other loan types, the rate is fixed and your payment won’t change. This stability makes them the most secure type of mortgage for buyers.

Adjustable-rate mortgages (ARMs) have a period of fixed interest, but after that the payment changes with whatever index the loan is based on. The period of fixed interest may be three, five, or seven years. With a 5/1 (the first number stands for the number of years in the initial fixed period, while the second indicates how often the new rate will adjust) ARM, for example, the initial interest rate remains fixed for the first five years, and then adjusts annually for the remaining term.

There are several types of caps that may apply to an ARM: an overall cap limits how much the interest rate can increase over the life of the loan; a periodic cap limits the amount the interest can increase from one period of adjustment to the next; and a payment cap limits the amount the monthly payment can increase at each adjustment.

While ARMs are less secure than fixed-rate mortgages, they tend to have lower initial rates and therefore lower monthly payments. They can be a good option if money is tight in the early years, as long as you are confident you can meet future interest and payment increases.

What’s next?!

You’ve taken the time to start saving and preparing for the mortgage process but what’s next? The first thing you should do is speak with a Tropical Financial Mortgage Loan Officer. They will sit down with you and explain the home buying process as well as what type of mortgage is best for you and your budget. They will also help you find a qualified Real Estate Agent with our Home Advantage program. But more than anything, they will be there for you throughout the entire home buying process.

Contact a Tropical Financial Mortgage Loan Officer today to get you started on the home buying process and be sure to check back as we share ways to help you make your dream of owning a home come true! 

I WOULD LIKE HELP BUYING MY HOME

The content reflects the view of the author of the article and does not necessarily reflect the views of Tropical Financial Credit Union or its employees.
We do not guarantee the accuracy or completeness of the information presented in the article.