Are you shopping around for a mortgage for the first time, but aren’t sure how a mortgage works?
You may be overwhelmed by all of the different mortgage options on the market. What exactly is the difference between a VA vs FHA vs USDA vs conventional mortgage? A mortgage is going to be the longest and largest loan you take out, so it’s important to understand how a mortgage works.
That’s why we’re here to break down how a mortgage works for you in this guide. Keep reading to learn more!
How Does a Mortgage Work?
Every time a new month rolls around, you’ll need to make a mortgage payment. However, making a mortgage payment isn’t as simple as some are lead to believe. While you’re paying towards your mortgage, there are actually four different parts you’ll be paying towards.
The four parts of a mortgage are taxes, insurance, interest, and principal.
The principal of your mortgage is how much your actually own towards the loan. You’ll pay this balance down each month. As for the interest, the interest is how much your lender will charge you each month for the type of mortgage you choose.
Thirdly, the taxes you’re paying on your property will go towards your mortgage too. You’ll pay 1/12th of your property taxes each month in your mortgage payment. Lastly, you’ll also have to pay for insurance.
Homeowners insurance covers your home against the costs of accidents, fire, or theft.
How Do You Qualify For a Mortgage?
There are a few things you’ll need to qualify for a mortgage. A credit score is one of those things. To qualify for a conventional mortgage or a fixed-rate mortgage, you’ll need to have a credit score of at least 620.
In addition, you’ll need to make sure you don’t have a high debt-to-income ratio. Lenders will determine your debt-to-income ratio based on your monthly gross income and how much you’re paying towards your monthly debts.
Your income is also needed to qualify for a mortgage. A lender will ask for your tax returns and your paystubs to get an idea of how much money you’re bringing in a year. This will play a huge roll in how much of a home you can afford.
You’ll also need a down payment to purchase a home. The more money you put down, the more you’ll save on your mortgage costs. But, not all home mortgage programs require a downpayment.
Do you want to see if you qualify for a mortgage? Check our phoenix mortgages today.
Getting a Mortgage Today
Getting approved for a mortgage is one of the most exciting parts of buying a home. Once you’ve gotten a pre-approval, you can start shopping around for houses. Just be sure to thoroughly research a lender before taking the time to apply for a mortgage.
Are you interested in learning more about buying a home? Bookmark our website to come back for more information!