Mortgage 101: A First-Time Home Buyer's Guide
Buying your first home is an exciting milestone, but it can also feel overwhelming—especially when it comes to understanding mortgages. This guide will walk you through the basics of mortgages and key terms every first-time homebuyer should know.
What is a Mortgage?
A mortgage is a loan used to purchase a home. The lender provides the funds, and in return, you agree to repay the loan with interest over a set period, usually 15 to 30 years.
Key Mortgage Terms to Know
Down Payment – The upfront cash payment you make toward the home's purchase price. Typically, this ranges from 5% to 20% of the home's value, but some programs allow for lower down payments.
Principal & Interest –
Fixed-Rate vs. Variable-Rate Mortgages
Fixed-Rate Mortgage – The interest rate stays the same throughout the loan term, offering predictable payments.
Variable-Rate Mortgage – The interest rate fluctuates based on market conditions, which can lead to lower initial payments but potential increases over time.
Mortgage Term – The length of time you agree to pay the loan. Common terms are 15, 20, or 30 years.
Pre-Approval – A process where a lender evaluates your finances and determines how much you can borrow. Getting pre-approved strengthens your position when making an offer on a home.
Amortization – The process of gradually paying off your mortgage through scheduled payments that cover both principal and interest.
Closing Costs – Fees associated with finalizing your home purchase, such as legal fees, title insurance, and property taxes. These typically range from 1.5% to 4% of the home's purchase price.
Mortgage Insurance – Required if your down payment is less than 20%. It protects the lender in case you default on the loan.
Steps to Getting a Mortgage
Check Your Credit Score – A higher credit score can help you secure a better interest rate.
Save for a Down Payment – The more you put down, the less you need to borrow.
Get Pre-Approved – Know your budget before house hunting.
Compare Mortgage Options – Work with a mortgage broker to find the best rates and terms.
Make an Offer & Close the Deal – Once approved, finalize the paperwork and get the keys to your new home!
Final Thoughts
Understanding mortgage basics can help first-time buyers make informed decisions. Working with a trusted mortgage broker can simplify the process and ensure you get the best deal. If you're ready to start your homeownership journey, reach out today for expert advice!
Call Dave Oliver TMG Mortgage broker 306 227 7367 he can help!