Mortgage with Low Down Payment
| Mortgage Protection Insurance Guide |
At the same time, owning your own home is one of the first
steps you can take toward earning financial independence. That’s because as a
homeowner, each mortgage payment you make adds to the equity you own on your
home—increasing your net worth.
At National Resource Connect, we’ve put together the
following mortgage guide that covers everything you need to know about the home
buying process. This guide is going to explain why having a mortgage is a good
thing, how to get a mortgage, what types of mortgages there are, what the
current interest rates look like, and more.
First, let’s cover the basics and answer some questions that
you might have.
1. The Value of Home Ownership
There are several benefits to owning your own home. First of
all, you’ll have a permanent residence that your family can enjoy for as long
as you’d like, and you can also customize your living space however you want.
You also don’t have to worry about a landlord increasing your rent, or having
to move to a new place every few years.
Homeownership is usually a good financial investment as
well. Each month, you’re increasing your net worth with every mortgage payment.
If you sell your home, you’ll most likely get paid back the equity you’ve
established, and hopefully then some. In most areas of the United States, home
values tend to increase over time.
In other words, owning a home is an investment in your
family’s future. On the other hand, when you rent an apartment, the rental
money you pay each month adds to your landlord's net worth—and that’s money that
you’ll never get back.
2. How Mortgages Work
Due to the high price of most homes, very few people can
afford to pay for a home outright with cash. According to Zillow, the median home price in
the U.S. is $231,700. So, in order to pay for a home purchase, people often
take out a loan from a bank or lender, which is called a mortgage.
Mortgages typically cover the cost of a home purchase after
the down payment is made. As a borrower, you then pay this mortgage loan back
to the bank over a period of years in the form of monthly mortgage payments. A
typical mortgage term is thirty years, but there are also ten and 15-year
terms.
3. What is a Down Payment?
When it comes to mortgage it is very popular statement buyer
asks how mortgage with low down payment works? so what is down payment? When you
buy a home, you’ll typically approach the transaction with some money saved up
that you’re ready to pay right away toward the home purchase. This is called the
down payment. Down payment amounts typically range from 5% to 20% of the home’s
selling price. Generally speaking, the more money you can put down, the better.
4. How Much Money Should You Put Down?
If you can afford it, your down payment should be at least
20%. That’s because if your down payment is less than 20%, you’ll most likely
have to pay for private mortgage insurance (PMI).
PMI is essentially an insurance policy, paid for by the
borrower, that protects the lender in case of a default. (A default is when the
borrower stops paying their loan.) The reason that lenders require PMI is
that borrowers with less than 20% equity are more likely to walk away from
their loans, which is a huge problem for banks/lenders. As a result, if you
don’t have a 20% down payment, you’ll have to pay PMI, which typically costs 1%
of your loan amount annually.
Let’s say you want to buy an average priced home at
$231,700. If you put 10% down, your mortgage loan would be around $208,530.
Since you only put 10% down, your annual PMI cost will be around $2,085, or
$174 each month. This is literally money down the drain because you don’t get
that money back if you sell your home like you do with your mortgage payments.
This is why it’s recommended to save up 20% for a down payment.
If putting 20% or even 10% down is out of the question,
don’t worry. If you have a steady job, some money saved up, and a decent credit
score, you can probably still qualify for a loan. For example, first-time homebuyers can qualify for an FHA loan, which is a
government-backed loan that allows you to put as little as 5% down.
5. Overview of Mortgage Terms and Interest Rates
Banks make money from interest fees charged on the money you
borrow. At the time of this writing, the average interest rate on a 30-year a fixed mortgage in the U.S. is 3.73%. Three to four
percent might not sound like much, but people are often shocked to see how
quickly it adds up over time.
Going back to our $231,700 sample home—let’s say you put
down a full 20%. Your loan is going to be around $185,000. Using the nifty tool
at MortgageCalculator.org,
you can see that with a traditional 30-year loan, at an interest rate of 3.73%,
you’ll wind up paying close to $123,000 in interest. That’s right—over $100,000
of your hard-earned money going straight into the lender’s pocket. And this
number only goes up if you have a bigger mortgage. No wonder why banks are so
eager to lend money!
If you want to pay less in interest—and let’s face it, who
doesn’t?—your options are as follows:
- Put more money down. Any extra money you can put down upfront reduces the amount of money you have to borrow from the bank. In turn, you’ll pay less interest.
2. Take out a shorter loan term. In our example above, if you were to take out a 15-year loan instead of 30-years, you’d
pay only around $57,000 in interest instead of $123,000. At the same time, your
monthly payments would be twice as much, which is out of reach for many
people.
3. Make additional payments. If you’re
set on taking out a traditional 30-year loan, you can make extra payments each
year in order to pay it off sooner. The more you pay each month, the quicker
you’ll pay off your loan, and the less interest you’ll pay.
4. Buy a less expensive home. It’s easy to get
carried away when shopping for homes. Just remember that the bigger your loan
is, the lower your chances are of paying it off.
6. The Mortgage Application Process
So you’ve decided to take the plunge and want to buy your
first home. Let’s take a look at the steps you’ll want to take in order to
ensure that the process goes as smoothly as possible.
Step 1: Check Your Credit Score
The first thing you should do is check your credit score.
Why? Because your credit score determines if you can get a loan in the first
place. Your credit score also plays a factor in how much money you can borrow
and what interest rate you’ll pay. If you have bad credit, unfortunately, it
might be difficult to get a loan from a private lender. However, you might still
qualify for an FHA loan.
If you’re interested in knowing your credit score, National
Resource Connect has partnered with FreeCreditScore.com. In just a few
minutes you’ll get access to your credit score, so you can start the mortgage
application journey armed with that information.
Step 2: Don’t Take Out Any New Loans or Debt
If you’re serious about buying a home, now is not the
time to buy a car or finance an expensive HDTV. That’s because any new loans
you take out will cause a hard inquiry on your credit score, which temporarily
lowers your score. As a result, when you apply for a mortgage, you might get
hit with a higher interest rate due to your credit score being lower at the
time of your application.
That said, it’s best to take things one step at a time. Get
your mortgage application and home purchase handled before making any other big
purchases. Homeownership also has unforeseen costs that might arise, like
renovation and maintenance costs. That’s why we recommend getting settled into
your home and start making mortgage payments for a few months (or even a year).
Then you’ll be in a much better position to see if there’s any money left over
for a large purchase.
Step 3: Choose a Lender
Once you’ve got all your financial ducks in a row, it’s time
to shop around for a mortgage loan. Thanks to advances in technology, millions
of Americans are applying for mortgages each day, right from the comfort of
their own home.
At National Resource Connect, we’ve partnered with the
nation’s leading mortgage lenders.
In just a matter of minutes, you’ll be able to find out if
you qualify for a mortgage, and get an idea for what your monthly payments will
look like. Visit
our mortgage application page here to get started. Just enter your name,
email address, phone number, and home address to get started. Our agents are
standing by to help.
Using our interactive portal, you can apply for a mortgage,
learn about refinancing options, home equity loans, and more.
If you’re looking to get a mortgage, you’ll then tell us a
little more about the home you’re looking to purchase, like if it is a single
family home or a condo, what is the selling price, and when you plan on buying
it.
Getting Settled in Your New Home
If you’ve made it this far, you may very well be on your way
to buying your first home. Congrats!
Remember that this is a very important step in securing
financial independence for you and your family. If you take care of your home
and make your mortgage payments on time, it’s almost guaranteed that your
investment will pay for itself over time. You might even earn a profit if you
decide to move down the road.
All that’s left to do is go shopping with your loved one at
your nearest Home Depot or Lowe’s, and decide which colors to paint the living
room, dining room, and bedrooms. Your loved one might even come up with some
new projects for you to do when you’re at the store. What could be
better?
Here’s to finding the home that’s right for you and to
making wise investments for your family’s future.
| Mortgage with Low Down Payment |
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