If you’re looking to purchase a home in California, you’ll likely need to take out a mortgage. A mortgage, in the laymen’s terms, is basically a home loan. When you set out to buy a home, no one expects you to have upwards of $300,000 in cash to buy a piece of land outright. That’s where your mortgage comes in! You borrow money from a bank or lending service and agree to pay it back over 10, 20, or 30 years. In this article, we’ll take a closer look at mortgages so you know what to expect when it comes time to apply for your own mortgage.
At American Dream Realty in Woodland Hills, we’ve helped hundreds of new and seasoned homebuyers navigate the waters of applying for a home mortgage. If you need assistance finding the home of your dreams, contact our experienced staff of realtors today!
What Exactly is a Mortgage?
Since buying a home can be extremely expensive, many people apply for a home mortgage to help them pay for a home. A mortgage is a lending system that allows a new homeowner to pay a fraction of the home’s cost (also known as a down payment) upfront, while a bank or another private lending institutions loans you the rest of the money. Depending on the terms of your loan agreement, you may arrange to pay the loan back, plus interest, over a certain period of time. In order to ensure that you pay back the money you owe, your bank or financial institution can put your house up as collateral. This means if you stop making your loan payments, the bank can take your house away from you in a process known as foreclosure.
Why You Should Research Different Mortgages
New homeowners have a lot to gain from having a mortgage, however it’s important to understand the ins and outs of each type before you make a final borrowing decision. If you end up taking out a mortgage that isn’t right for you, it may lead to foreclosure. Not only will you have to move out of your new home if you are unable to make the payments, you’ll have to wait between three and seven years before you are allowed to purchase another home. Your credit score can also suffer, and you could be hit with a large tax bill at the end of the year.
How Do You Get A Mortgage?
In order to obtain a mortgage, you have to find a reputable lender. Lenders can be individual banks or mortgage brokers who have access to large banks and other lenders. The biggest lenders in the country used to be Wells Fargo, Chase, and Bank of America. These days, however, more and more homeowners are working with community banks or credit unions for loans. Whoever you decide to work with, you want to make sure they have a reputation of being reliable and efficient, because any delays involved in closing a sale can cost you more money. Depending on where you live, government loans have been made available through the Federal Housing Administration (FHA) as well. If you think you may qualify for these loans, you can check out the requirements on the FHA website.
Another important thing to mention is that mortgage lenders don’t just loan out hundreds of thousands of dollars to just anyone. This is why it’s so important to maintain your credit score, as this is one of the primary things your lender will look at before they deem you as a reliable borrower. A credit score of 720 or higher often indicates a positive financial history, while a score below 660 may not get you the amount of money you need. Lenders have been known to reject applications if the borrower has poor credit, but there is no universal cutoff for everyone.
In part two of this series, we’ll discuss how mortgages are structured as well as the different types of mortgages available. If you have any questions regarding the home buying or mortgage process contact American Dream Realty in Woodland Hills today. We’ve helped hundreds of people find and buy their dream home in California, and we would be happy to do the same for you!