Homebuying 101: Understanding Your First Mortgage

For some, becoming a homeowner is often thought of as a rite of passage into adulthood. For others, it’s an investment opportunity by becoming a landlord or reselling later at a higher price. Buying a house can give you the chance to put down roots, improve your credit and build a home for your family. But it can be a complex process that typically requires applying for a home loan known as a mortgage. Before you begin the mortgage application process, it’s important to understand how mortgages work and what you can do to set yourself up for success.

What’s Included in a Monthly Mortgage Payment?

Most people understand that when they apply for a mortgage through a lender like Sun West Mortgage, they’ll need to pay back the principal amount, plus interest. Interest rates are determined by present market trends, the area you live in and your current credit score and financial status. However, your monthly mortgage payment doesn’t just include principal and interest. You’ll also be paying property taxes, which are determined by the home’s location and value. It’s important to consider this amount as you’re shopping around for your new house. Taxes can deeply impact your ability to afford your monthly payments and can vary greatly based on zoning alone. For example, a $200,000 house in Philadelphia may only have an annual property tax of $2,000, while a similar home just 5 minutes outside of Philadelphia city limits could cost $9,000 or more. In addition to taxes, you’ll be required to maintain homeowner’s insurance and may also have to pay mortgage insurance premiums.

How Should You Prepare for the Application Process?

Before you apply for a mortgage, you’ll want to make sure your credit and finances are in a satisfactory state in order to gain approval and receive the best possible interest rate. Saving as much as possible for a down payment is a good start, but certain behaviors and practices are just as important when it comes to the application process. First, you’ll want to make sure that you’re paying all of your other bills on time, including things like your cell phone, credit card and medical bills. Any late payment, no matter how small the amount, can have a detrimental impact on your credit report. Many people purchase a home after starting their first major job, and use the opportunity to invest in other costly items at the same time, such as a new car. Making a large purchase or taking out another loan is a red flag to some lenders and could impact their decision to approve you, especially if you already have poor credit. It’s also not a good time to change jobs, change bank accounts, or co-sign on another loan for a friend or family member.

How Can You Save Money on Your Mortgage?

While you can expect the same average interest rate based on your credit and location, it’s important to shop around when choosing a mortgage company. Certain lenders, such as Sun West Mortgage, may be able to offer a slightly lower rate that could save you thousands of dollars long term. You’ll also want to keep an eye on interest rates over time. As you pay down your loan and improve your credit, it may be prudent to refinance at a lower rate to save even more money. Setting aside funds to pay off your mortgage early is a wise plan. Even if you only make one extra payment per year, you could still save tens of thousands of dollars in interest by ultimately paying off the loan a few years early.

Whether you buy a fixer-upper to improve with your own hard work and creativity, or a move-in ready house, understanding your mortgage can help you purchase your first home with confidence.

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