{"id":3735,"date":"2024-09-16T10:23:59","date_gmt":"2024-09-16T15:23:59","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3735"},"modified":"2024-09-16T10:24:29","modified_gmt":"2024-09-16T15:24:29","slug":"what-is-a-mortgage-and-why-is-it-important","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/what-is-a-mortgage-and-why-is-it-important\/","title":{"rendered":"What is a mortgage and why is it important?"},"content":{"rendered":"\n

A mortgage is your ticket to owning a home without having the full cash upfront. It\u2019s a loan that lets you buy property using borrowed money. You snag the funds you need to buy the place, and in return, you promise to pay that money back over time, with interest. For instance, if you’re eyeing a $300,000 house but only have $60,000, a mortgage covers the remaining $240,000. The lender evaluates your financial situation\u2014credit score,<\/a> income, and existing debts<\/a>\u2014to decide if you\u2019re good for it.<\/p>\n\n\n\n

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What’s the process of getting a mortgage? <\/h3>\n\n\n\n

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  1. Pre approval:<\/a><\/strong> You kick things off by filling out some basic information about your personal financial situation\u2014your income, credit, and other debts, for example\u2014before you start shopping for a home. Your lender will calculate the amount they could lend you, based on this information, and write you a pre approval letter that you can use when you\u2019re ready to make an offer on a home.<\/li>\n\n\n\n
  2. House hunting:<\/strong> With pre approval in hand, you hunt for homes within your budget.<\/li>\n\n\n\n
  3. Offer and acceptance:<\/strong> Find your dream home? Wonderful! But talk to your lender before you make an offer. They\u2019ll be able to refine your offer letter<\/a> to make it strong and compelling\u2014often, this can mean the difference between winning and losing an offer on a home.<\/li>\n\n\n\n
  4. Application:<\/strong> If a seller accepts your offer, you\u2019re ready to move into the \u201creal\u201d application. You\u2019ll need to sign some paperwork, share more information about the property, and confirm any remaining details about your financial situation so that your application can be sent to underwriting<\/a>. Your lender will likely order a home appraisal at this time.<\/li>\n\n\n\n
  5. Conditional Approval:<\/strong> Now you\u2019ve done your part, and you\u2019re all approved and ready to go, so long as all the other details in the loan check out. <\/a>It\u2019s up to the underwriter to verify and assess hundreds of little details, and also ensure that the Title on the property and the Appraisal are in good shape. You\u2019ll also probably lock in an interest rate in this timeframe, depending on when you plan to close.<\/li>\n\n\n\n
  6. Final Approval: <\/strong>Once everything is verified, you\u2019re in \u201cfinal approval\u201d<\/a> and ready to prep for the closing.<\/li>\n\n\n\n
  7. Closing:<\/strong> Seal the deal. You finalize the loan, cover closing costs, <\/a>and sign the paperwork. For a $350,000 home, closing costs could be 2-5% of the price, covering appraisal fees, title insurance, and other essentials.<\/li>\n<\/ol>\n\n\n\n

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    Get started on a pre approval<\/a><\/div>\n<\/div>\n\n\n\n

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    What are the key mortgage terms I should know? <\/h3>\n\n\n\n

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    Interest Rate:<\/strong> This is the cost of borrowing the principal amount. For example, a 6% rate <\/a>on a $400,000 loan results in $24,000 in annual interest. Not to be confused with the APR <\/a>(annual percentage rate), which is the interest rate plus the costs associated with closing such as purchased \u201cpoints\u201d<\/a> and \u201corigination fees.\u201d\u00a0<\/a><\/p>\n\n\n\n

    Rate Points: <\/p>\n\n\n\n

    Down Payment: <\/strong>This is the amount you pay in cash for the house, with the rest covered in the mortgage. Most first time home buyers put 8% down for their home loan. Conventional loans usually require at least 3% down (e.g., for a $400,000 home, that\u2019s $12,000). FHA loans also allow for lower down payments, like 3.5% and also have less strict regulations for DTI and credit scores, making homeownership more accessible. Learn more about the pros and cons of different down payment options.\u00a0<\/a><\/p>\n\n\n\n

    Loan Term:<\/strong> This refers to the length of time you have to repay the loan, typically 15 or 30 years.<\/a> A 30-year term means lower monthly payments but more total interest compared to a 15-year term.<\/p>\n\n\n\n

    Principal:<\/strong> The initial amount of the loan. For example, if you borrow $400,000, that\u2019s your principal amount.<\/p>\n\n\n\n

    Monthly Payment:<\/strong> This combines both principal, interest, and associated taxes and fees. For instance, a $400,000 loan at 6% over 30 years results in about $2,398 per month.<\/p>\n\n\n\n

    Loan Type:<\/strong> The type of mortgage affects your interest rate and overall loan terms. Common types include:<\/p>\n\n\n\n