When it comes to borrowing money, most people know about student loans, credit cards, and car loans, but there are several other types of loans out there. One that many people may not know about is the mortgage loan. In fact, many Americans are homeowners because of the ability to take out this type of loan and buy their dream house or condominium unit. While each state has its own laws regarding mortgages, there are certain basics that apply across the board.
How much can you borrow?
The amount of money you can borrow will depend on how much you earn and what your financial situation looks like. Typically, lenders will want to see that you have enough money coming in each month to cover your regular living expenses (rent or mortgage payments), plus cover any additional expenses that may come up (car repairs or emergency medical care). If there isn't enough income coming in from your salary alone, lenders may also look at your assets for collateral. Assets are items of value that a person owns but doesn't necessarily use every day, such as stocks or jewelry. Assets are then used as collateral to secure the loan if there's not enough income available. Other factors that go into determining the amount you can borrow include your credit history and credit score, which is essentially a measure of how reliable you've been with paying back previous loans and debts.
How much do you need to put down?
In order to get a mortgage, you need to have enough money for your down payment. Generally, when you put 20% of the purchase price down you can qualify for conventional loans which are less expensive than FHA or VA loans. For example: If you plan on buying a house for $100,000 with an FHA loan then you need at least $5,000 in cash for your down-payment (20%). To qualify for a conventional loan, you would need about $10,000 in cash for your down-payment.
If you plan on buying a condo worth $200,000 with an FHA loan then you only need 3.5% ($5000) in cash as your down-payment because condos usually cost less than houses.
How does your credit score affect your mortgage?
Your credit score affects your mortgage in many ways. First of course, you will need good credit in order to get approved for a mortgage. If your credit score is good then you can expect lower interest rates because lenders have more faith in your ability to repay them on time. You will also be able to get better terms on your loan if you have a high credit score as opposed to someone with low or no credit score at all. Lenders are often willing to extend higher limits and charge less fees for people who have a higher credit rating. In addition, people with higher scores may not require private mortgage insurance (PMI). People with low scores will usually require PMI which could increase their monthly payments by $100-$300 depending on their home’s value.
How does your employment history affect your mortgage?
Lenders consider your credit history, employment history, current income and how much you owe on other debts when they decide whether or not to give you a mortgage. A good credit score, steady job history with significant income potential all help make you a more attractive prospect for lenders. But if you have less than stellar credit or have had unemployment problems in the past year, it may be difficult for you to get approved for a home loan. If this is the case, then a FHA-insured loan might work better for you. These loans are insured by the Federal Housing Administration, which offers loans to people who can't qualify otherwise.
What other factors affect your mortgage?
There are a few other factors that affect your mortgage such as credit score and down payment amount. Credit scores will impact what interest rate you qualify for, which in turn affects how much your monthly payments will be. The size of your down payment also plays a role in what interest rate you can qualify for-the bigger the down payment, the better interest rates you'll get. For example, if you put 20% down on a house worth $200,000, your monthly payments would likely be lower than if you put 5% down on the same house. Generally speaking, people with higher credit scores and higher salaries qualify for lower interest rates on their mortgages.