Your First Mortgage
Although buying your first home is an exciting event that everyone looks forward to, there are some financial steps and legalities that need to be processed before your dream home can become your own. What many buyers’s agents and real estate professionals suggest is that you get yourself pre-approved for a mortgage before you even begin your house hunt. This is a realistic way to see what your home budget is and what you can afford. The biggest mistake new home buyers make is rush out and find their dream home only to discover that no bank with approve them for a mortgage of that size for a number of different reasons.
You can become pre-approved through online applications and this mortgage is generally not the one you will use for your home but only a guideline as you what your home buying budget should be, realistically. Once you have this you can feel free to shop the real estate market with confidence, always with your pre-approved mortgage budget in the back of your mind. From here finding your home is the easy part, now you must visit your trusted lender and discuss your different mortgage options.
Choosing the right mortgage terms to meet your needs can be more complicated than you imagined and does take some time and research to make the proper decision. You first want to decide on a short or long term mortgage and this takes an honest look at your current financial situation and your estimations of your future income as well. If you cannot be honest when making these decisions then you are going to find yourself in a financial situation you cannot afford to maintain.
A short term mortgage has a term of 6months-10years and a long term can be as long as 25years. Most people choose the longer term because it is too much financial pressure for most to pay off their mortgage in 10years or less. Once you have made this decision you need to decide on a fixed rate or a variable rate for your mortgage term. A fixed rate means you get the best available interest rate at the time and it never changes throughout the duration of your mortgage. Choosing the variable rate allows your rates to fluctuate with the market, going up and down throughout your term. This is a personal preference that can make help you save a great deal of money in the long run.
An open mortgage is a great option for those who are sure they are going to sell before the duration of their mortgage expires and this allows them to pay off their mortgage in large lump sums without paying penalties or fees. On the other hand a closed mortgage does not allow you to pay off your mortgage until it has expired. Once again, this is a choice you will want to discuss with your lender and your mortgage can always be refinanced in the future as your income and financial situations change for the better or the worse.
As you can see choosing a mortgage takes more than just signing a few papers, so make sure you do your homework before finding the house of your dreams so you can make these decisions with confidence.
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