WHAT’S A MORTGAGE AND HOW DO I GET ONE?

Knowing how much you can afford to spend on a home and exactly what your monthly payment will be can give you enough information to include or exclude certain homes during your search.

A mortgage is a loan that home buyers can procure from a variety of sources. Buyers can go to a bank, a mortgage broker, a savings and loan, a credit union and, sometimes, sellers are willing to carry a mortgage for the buyer. This is called a Contract for Deed. Home buyers can also secure a Contract for Deed from other private lenders.

See what you can afford in a mortgage with our mortgage calculator

Before you start looking for a house, talk to several lenders to find out the best loan program for you. These lenders will inform you about their pre-qualification process. Home sellers require a mortgage pre-approval letter from the lender in order to have confidence in the buyer’s ability to afford the house.

Your lender will determine your purchase power by perusing the information you provide for them regarding your income, your debt, your down payment money and your credit rating. Be prepared to share this information with your lender. In most cases, your privacy is completely protected. But, make sure you are satisfied as to any lenders reliability. Most lenders will charge a fee to obtain your credit report.

When considering the down payment on your home, know that a 20% down payment is ideal because it allows you to avoid costly private mortgage insurance. There are varieties of loan programs available that require less money down, (even some 0% down programs) but they usually have more stipulations from the underwriter. Check out the mortgage calculator to estimate your monthly mortgage payment.

Once you decide on a lender, make sure to get an estimate of the closing costs. This is called a “Good Faith Estimate” and all lenders can provide a preliminary estimate initially, then, one that is more specific when you find the house you would like to purchase. They will tell you what your PITI will be, that is your house payment broken down in to (P) principal, (I) interest, (T) taxes and (I) insurance.

What are Mortgage Points?
The lender may include points in what will defray your costs or your interest rate. A “point” equals 1% of the amount of your loan. Points are prepaid interest on a loan and are paid to your lender when you close on a home. A loan with points has a lower interest rate than one without points.

Your lender will also include the price of an appraisal in your estimate. The appraisal is an evaluation made by a professional appraiser for your lender. This estimates the value of your home for your lender to make sure its value supports the loan amount. A series of calculators here will help determine the loan terms that fit your plans before making the purchase. Find out how many years can be taken off your mortgage by making additional monthly and/or yearly house payments.

Click here to view a list of Minnesota Mortgage Lenders.

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