Mortgage 101
mortgage loan basics
You invest a lot in your home, so it’s important to find the best mortgage that matches your needs. There are many different options out there and picking which one is best for you can be tough. Fortunately, taking some time to research what works for you can make things a whole lot easier!
Understanding Basics That Most Borrowers Struggle With
Transforming California Mortgage Lending by Enabling You to Make Informed Decisions
Home Loan Basics
What is a mortgage?
Your purchase of a home will be one of the largest, most important purchases you’ll make in your life. Few things cost as much and few things will affect your life as much either. A simple definition for a mortgage is a type of loan that can be used to buy or refinance a home. Mortgages are also referred to as “mortgage loans.”
Mortgages are a way to buy a home without carrying all the cash upfront. Mortgages work similarly to other loans with the borrower taking on some amount of debt, interest paid back to the lender and repayment over predetermined number of years.
A mortgage loan is a type of loan that is used for the purchase of real estate. Mortgages can be customized to meet your needs and financial situation, such as loans for buyers with low or no down payments and loans for members of the military.
The bestmortgage lenders in San Diego will help you build the perfect loan to suit your needs.
Mortgage Loan Basics
5 common types of mortgage loans for homebuyers
When choosing a mortgage for your needs, there are several key types that mortgage companies in San Diego will tell you about. The goal is to find one that suits your needs. While some offer more flexible payment models at higher interest rates, others levy lower interest rates but have more specific requirements.
1. Conventional Mortgages
Conventional loans are the most popular type of mortgage in California thanks to no upfront mortgage insurance and a quick underwriting process. A conventional loan is a great option for anyone that wants to put down as little as 5%, has a steady income, and an established credit score! Learn more about conventional loan limits in California below.
2. Jumbo Mortgages
Jumbo mortgage loans are designed to provide financial options for people who want to buy a home above the conforming loan limit of $548,250 to $822,375 (depending on your county) for 2021.
A jumbo loan in California offers competitive rates with additional benefits that can provide you more purchasing power and leverage. Jumbo loans are more common in higher-cost areas, and generally require more in-depth documentation to qualify.
3. Government-Insured Mortgages
Government plays a key role in helping more Americans become homeowners. The Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the U.S. Department of Veterans Affairs (VA loans) all offer mortgage lending assistance that helps people afford to buy homes with lower down payment requirements and low monthly payments so they can live their American Dream!
4. Fixed-Rate Mortgages
Fixed rate mortgages are like a luxury apartment. They’re very reliable, but come with a price tag. In mortgage terms, it means you’ll be paying a fixed interest rate. Typically, these mortgages span between 15 or 30 years and often have an extra 1% fee on top of variable rates to cover inflation. However, if you can negotiate the interest rate for your specific needs, then it might just be worth the protection from rising rates in the future!
5. Adjustable-Rate Mortgages
Unlike the stability of fixed-rate loans, adjustable-rate mortgages (ARMs) have fluctuating interest rates that can go up or down with market conditions. Adjustable-rate mortgages can be compared to an old car, reliable only for the short term. You never know when the interest rate might fluctuate and become higher. It relies heavily on the prime index rate and market conditions. Usually there are floors and caps to minimize banks’ losses, or the impact of frequent fluctuations on you.
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The Mortgage Process
There are several steps you’ll need to go through to become a homeowner.
STEP 1
When searching for that perfect home, it’s important to get initial approval from your mortgage lender before you start shopping. The best way to do this is by getting qualified upfront or telling all the different lenders up front what type of house you want to buy and what amount of money you have for a down payment. This way, no matter which homes you find on the market, they won’t be outside your budget!
Mortgage lenders use different words like approval, preapproval, and prequalification to describe this process. There are some key differences between these three terms: approval usually happens within one business day; while both preapproval and prequalification may take longer than a week if they include employment verification.
STEP 2
Make An Offer
Now comes the fun part – its time to shop for your new home and make an offer! Finding your home is a big step in life, but it should be enjoyable and exciting too! This can be accomplished by using an experienced real estate agent, they can help you find the perfect house that meets all of your needs. And if you’re not sure about something in particular (such as price), they’ll work with both of you to come up with an agreeable compromise. They’ll also take care of all the documents and paperwork for buying or selling along with any other details so there are no surprises!
STEP 3
Get Final Approval
Your offer has been accepted, and before you can move in to your new home, there are a number of steps that need to be taken. First, the lender needs to verify all of the details on your mortgage – including confirming your income and employment status – if those details weren’t verified upfront. They’ll also need to verify the property details. This typically involves getting an appraisal to confirm the value and condition of the property. Your lender will also arrange a title company to check the title of the home and make sure there are no issues that would prevent the sale or cause problems later on.
STEP 4
Close On Your Loan
Once your loan is approved, you’ll meet with a lender and real estate professional to close the deal. At closing, you’ll pay your down payment and closing costs, sign on the dotted line of the mortgage papers, and own your new home!
