Basically, a mortgage is a loan that will provide you with the finances necessary so you can purchase a home. There are many different components of a mortgage, and it’s important to be informed—most mortgages take anywhere from 15 to 30 years to pay off!
Here are a few different components of a mortgage:
Principal = the amount of money you borrow to buy your home. The principal can be lowered by making a down payment.
Interest = the cost of borrowing money.
Taxes = these are also known as property taxes, and how much they are will depend on where you live.
Insurance = you need to have insurance that will cover your home from various losses, such as a fire, natural disasters, and more.
There are also several different types of mortgages! Your realtor and lender will help guide the way, but here are a few different types:
Fixed-rate loan: This is a very traditional mortgage, and it means that you will pay off your loan over a certain time frame. During this time, your interest rate will stay the same.
Adjustable-rate mortgage (ARM): The advantage to this loan is having a lower interest rate upfront. The disadvantage is that interest rates can change. There are controls in place to prevent giant fluctuations, but your rates may still increase.
Federal Housing Administration (FHA) loans: Offered by the Federal Housing Administration, these loans are for people who don’t have money for a large down payment or who don’t have great credit scores.
Veterans Administration (VA) loans: This type of loan is offered to active military personnel and veterans who qualify. Typically, this means you do not have to offer a down payment or pay mortgage insurance.
USDA loans: Backed by the United States Department of Agriculture, these types of loans are meant to help people in more rural areas (although some suburban areas qualify as well). If you are eligible for a USDA loan, you can buy a home without a down payment and get excellent below-market rates.
Conforming loan: This type of loan adheres to GSE (also known as Fannie Mae and Freddie Mac) guidelines. These loans are also known as conventional loans, and there is a limit to how much these loans can be for.
Jumbo loan: These loans are not conforming loans, which means you are taking out more money that the limit of conforming loans. These types of loans may have a higher interest rate.
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