What is a Mortgage?
Mortgage Debt Is Low Interest
A mortgage is one of the most affordable means of borrowing money that you will ever encounter, unless you receive a zero-interest loan from a wealthy uncle. Think about it: credit card companies may offer teaser rates, but those are only good for the first year or so. As it stands right now, mortgage interest rates are historically low, and if you’re locked in at 3.75%, you can put money towards other debt rather than paying off your house in a hurry. For example, you might instead pay off your credit cards. Once you’ve vanquished your high-interest revolving debt, you might turn your attention to paying off your auto loans, which, as low-interest as they might be, are undoubtedly higher than your mortgage.
Mortgage Interest Is Tax-Deductible
If you file 1040 and itemize your deductions, you can deduct the interest paid on your mortgage. The higher your tax bracket, the more lucrative this deduction has the potential to become. For example, if you’re in the 35% tax bracket, then every thousand dollars you spend on mortgage interest nets a tax savings of $350. Plus, you’ll also get a tidy deduction from your state tax obligation.
Mortgage Payments Seem to Get Smaller and Smaller
When you first take out your mortgage, the monthly payment might seem pretty pricey, compared to what you might have been paying in rent, but assuming you’re on a fixed-rate mortgage, you’ll probably find that it seems smaller and smaller as the years go by. If you live in a desirable place, rents will go up along with property values, and at a certain point, your monthly payment will seem like a downright bargain. In addition, think of the wealth you will have created from equity because of that market appreciation.
The Mortgage Process
There are several steps you’ll need to go through to become a homeowner.
1. Get Approved
It’s a good idea to get an initial approval from your mortgage lender before you start looking for homes. Getting approved upfront can tell you exactly how much you’ll qualify for so you don’t waste time shopping for homes outside your budget.
Mortgage lenders use a variety of terms – including approval, pre-approval and pre-qualification to describe the initial approval process. It’s important to look for a lender that verifies most of your information upfront so you can make a strong offer.
2. Shop For Your Home and Make An Offer
Now, the fun part begins! Contact your Real Estate Agents to start seeing homes in your area. Real estate professionals can help you find the right home, negotiate the price and handle all the paperwork and details.
3. Get Final Approval
Once your offer has been accepted, there’s a bit more work to be done to finalize the sale and your financing. At this point, your lender will verify all the details of the mortgage – including your income, employment and assets – 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 home. Your lender will also hire 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. You will also need to submit your earnest money deposit to escrow which is generally 3% of the purchase price. This is applied towards your down payment at closing it is not in addition to.
4. Close On Your Loan
Once your loan is fully approved, you’ll meet with a notary public to sign your loan documents to close your loan and take ownership of the home. At closing, you’ll pay the balance of your down payment and your closing costs. Once this process is complete your lender will fund your loan and then the title company will record the deed with the county clerk’s office showing you as the new owner. After that is done your Realtor will give you the keys to your new home!
Summary
A mortgage is a type of loan you can use to buy a home. It’s an agreement between a lender and a borrower. Knowing some of the basic mortgage lingo ahead of time can help you understand exactly what you’re signing up for. There are different types of mortgages and different types of interest rates.
The biggest steps in the home buying process are getting approved, shopping for your home and making an offer, getting final approval, and closing. Seek the knowledge of an experienced lender to guide you through the process.
National Association of Realtors (NAR): Rates should remain around 3.6%
Lawrence Yun is chief economist for the NAR. He told us his group believes mortgage rates will remain low next year — ending up around 3.7% for 30-year fixed-rate home loans.
In its U.S. Economic Outlook report for October, the NAR officially forecasted a 3.6% average rate annually for the 30-year fixed-rate mortgage in 2020.
“The Fed will have cut the Federal Funds rate two more times by next year,” Yun says.
Yun notes that “rates will be higher if inflation picks up due to tariffs filtering up as higher prices.” If a rate increase happens, it’s “likely to be muted by a slower economy. But don’t underestimate the negatives of higher tariffs.”
Yun also expects the U.S. budget deficit to grow.
Sponsor
And now a word from our favorite lender, Andy Green, who has been in the mortgage business for over 20 years, and our go-to for all things numbers, market-projections, and hand holding our clients through the sometimes daunting task of procuring a home loan.
“I believe I have a different approach to the business than most originators out there. I’ve found over the years that most of the Loan Officers out there seem to be a bit jaded and because of that they seem to assume that they know what’s best for their clients. I like to take my time with my clients, ask questions to find out exactly what their long and short term goals are so I can give them all of the options that are available to them. I explain the pros and cons of all the options presented and then they are in a position to make an informed decision on what loan program will be best for them.
My company Capital Mortgage Services provides me access to a wide variety of loan products including conventional, FHA, VA, Jumbo, ARMs, and even state income and bank statement loans, so I am able to deliver whatever program that will best suit my clients.”
