What You Need to Know About Down Payments and Mortgages
Understanding Down Payments and Your Mortgage Loan
When you're ready to buy a new home, there’s a lot to think about. From the neighborhood you desire to the number of bathrooms you'll need, plenty of decisions will have to be made. But one thing that you'll really need to consider – no matter which home you choose – is how you'll pay for it. This involves making a down payment and taking out a housing loan called a mortgage. Here, Carthage Savings & Loan explains what you need to know to prepare for these significant steps in the home buying process.
The Ins and Outs of Mortgages
A mortgage is a loan specifically meant for buying a home to call your own. Signing a mortgage contract means you have agreed to borrow a set amount of money from a lender and pay it back according to specific terms. If you don’t follow the payment plan set by your lender, they have the right to seize the property.
In general, your mortgage contains the principal and interest on your loan. Principal refers to the remaining balance on the loan itself, while interest refers to the additional money you'll have to pay by spreading out your repayment over the upcoming years. For instance, if you have a 10-year mortgage, your interest will be much less than if you have a 30-year mortgage, as the lender is receiving their money back in full much sooner. Mortgages can also contain other items, including:
- Property taxes
- Homeowner's insurance
- Private mortgage insurance (PMI)
- Government-backed loan insurance, such as that associated with a Federal Housing Administration (FHA) loan
Without a mortgage, you'll need to pay cash upfront for a home – something almost no prospective buyer will be able to do given the high cost of housing. Fortunately, there are many types of mortgages to choose from, and which kind you obtain will depend on your financial situation. For instance, traditional mortgages require you to follow Fannie Mae or Freddie Mac stipulations, which can include credit score minimums. There are other options, such as the aforementioned FHA loan, which allows you to secure a mortgage without putting nearly as much money down.
Understanding Down Payments
Down payments are an incredibly important aspect of the home-buying process because they come from your own pocket. This lets the lender know you have something on the line, making them more willing to offer you the loan.
Additionally, the larger your down payment is, the lower your monthly payments will be. Plus, large down payments can also help you avoid PMI, which is required if you have put down less than 20% of the purchase price. Of course, not everyone can afford such a large down payment, and in many cases, not completely depleting your savings account is the smarter option.
Get Started with Carthage Savings & Loan
Navigating your options for mortgage loans and how large of a down payment you should make can be tricky, but Carthage Savings & Loan is here to guide you through every step of the process. We even allow you to get pre-qualified right from the comforts of home. If you're interested in learning more about how our team can help in your home search, don't hesitate to contact us today or visit your local branch.