Last Updated on October 11, 2022 by Luke Feldbrugge
Most people searching for a home will likely need some form of financial assistance to make the home purchase. Mortgage loans are a type of loan given by a bank or lender designed to be applied towards home purchases. There are all kinds of mortgage types, designed with different financial needs in mind. We’ll walk through the types of mortgages, what they mean for the borrower (you), and some tips for getting approved.
What is a Mortgage Loan?
A mortgage loan is a type of secured loan where the property being purchased is used as collateral against the debt. The lender loans a large sum of money to the borrower, which they will then use to purchase a home. The mortgage loan usually lasts for around 15-30 years, and during this time the borrower pays back the amount borrowed. In exchange for borrowing the money, a small fee is assessed when you pay the mortgage back. This is called interest.
Mortgage Interest Rates
The interest rate on a mortgage loan is the percentage of the total borrowed amount that you will have to pay back in addition to the original sum. This number can vary depending on a variety of factors, including your credit score and the type of mortgage you choose.
Interest rates have a tremendous impact on how much you’ll pay over the life of your loan. Generally, the lower your interest rate is, the less you will pay over time. For example, if you get approved for an interest rate of 4% on a $400,000 home, you could pay around $80,000 more than if you got a rate of 3%.
Types of Mortgage Loans
There are all sorts of mortgage loans available, each with its own benefits and drawbacks. Some popular types include:
- Conventional Mortgage: A conventional mortgage is a loan that is not insured or guaranteed by the government. This type of mortgage usually has a lower interest rate but requires a higher down payment.
- FHA Mortgage: An FHA mortgage is an insured mortgage that is backed by the Federal Housing Administration (FHA). This type of mortgage typically has a lower interest rate. FHA loans are also great for someone looking for a smaller down payment, as 3.5% is the lowest that you’ll need to put down on a home.
- USDA Mortgage: A USDA mortgage is a loan that is backed by the United States Department of Agriculture (USDA). This type of mortgage is designed for rural and suburban homeowners and offers low-interest rates and no down payment.
- VA Mortgage: A VA mortgage is a loan that is offered to veterans and service members through the Department of Veterans Affairs. This loan has low-interest rates and generally requires no down payment.
One important step during the home buying process is to get a mortgage pre-approval. The pre-approval process is when a lender looks at your financial information and decides if you are eligible for a mortgage loan. This process usually takes around 24-48 hours, and it’s important to have all of your documentation ready beforehand. If you are going to get a pre-approval, it is important to do it before you start looking at houses.
Why You Should Be Pre-Approved for a Mortgage Loan
Getting pre-approved for a mortgage loan is important because it ensures that you can afford the home. If your lender isn’t comfortable with your ability to pay back the amount being borrowed, they have every right not to approve you for the loan.
In today’s hot real estate market, things move very quickly compared to the past. If it takes a lender a couple of days to approve a loan for a house you’d like to purchase, the unfortunate reality is that the home might not be on the market still if you do get approved. Having a pre-approval is one of the best tools you can have when you’re house searching.
What is needed for pre-approval
In order to get pre-approved for a mortgage, you will need to gather documents like your bank statements, tax returns, paychecks, and any outstanding debts, like a car loan. The lender will use this information to verify that you have a steady income and are not in too much debt.
How long is a pre-approval good for
Pre-approvals are usually good for around 60-90 days. This gives you time to find a home and complete the purchase. If you are unable to have an offer accepted during the time your pre-approval is good for, you will need to get pre-approved again.
Tips for getting pre-approved for a mortgage
The pre-approval process is an important step in buying a home, and it’s crucial to be prepared.
- Make sure you have all of your documentation ready before applying. This will help speed up the pre-approval process.
- Shop around for the best interest rate. Compare offers from different lenders to find the best deal.
- Keep your credit score in good shape. A high credit score will help you get a lower interest rate on your mortgage.
- Don’t apply for new credit cards or take out any loans while you’re in the pre-approval process. This could hurt your chances of getting approved.
How Homes for Heroes Helps
At Homes for Heroes, we connect teachers, healthcare workers, law enforcement, firefighters, EMS, and active, reserve, and retired military members with real estate agents and home mortgage specialists. These specialists are near you, have knowledge of the area you’re looking to buy or sell in, and are committed to serving our heroes as they serve us. We’ve helped over 50,000 heroes buy, sell, or refinance their homes.
Our mortgage specialists will be able to talk about all the financing options available to you, and work with you to get a great interest rate and mortgage loan that suits your needs. Plus, we offer you Hero Rewards when you finish your home transaction. On average, heroes get $3,000 back after closing. That’s cash back to you for anything you wish – new furniture, covering moving expenses, you name it!
If you’re ready to talk mortgages and get connected with a real estate specialist, sign up here and we’ll connect you with an agent in your area.