Should I Get a Mortgage? A Common Question Among Aspiring Property Owners

Mortgage is the loan obtained in buying the house. People who heard of mortgage for the first time think that the lender will pay for the property in full then they will just pay them back through monthly payments. However, buyers will still need to pay a down payment, equivalent to a certain percentage of the property’s value then the mortgage will cover for the rest of the amount. Once approved, the buyer will then receive a set amount of money to be paid monthly to pay off the mortgage.

Whether you’re getting an FHA loan or other loan type, using mortgage has its advantages and disadvantages.

Benefits

The primary advantage is buyers don’t have to worry about looking for an expensive amount of money just to pay a house. They simply need to save funds for down payment, which usually takes a year to earn, pay it to the seller, then the lender will settle with the remaining balance. This will then be paid in monthly terms.

Another benefit is buyers are eligible to getting much lower monthly fees with longer payment terms. Payment terms usually last 15 to 30 years, which means all the loans to pay together with interest rates added on top of the actual property price. Even if the interest rate is higher, buyers won’t still feel burdened in paying their loans.

The number of lenders offering their services also serves as an advantage. Buyers can take advantage of numerous lender and loan options that suit their needs. Loan types available include FHA loans, conventional, VA, jumbo loans, and others that match their property needs. Some buyers can even take advantage of unique loan options made for them with numerous perks. A good example is the VA loan, which is meant for war veterans or servicemen. This loan lets eligible applicants enjoy no-down payment mortgage, saving them a lot of money in buying a house. Lenders can also recommend different mortgage types that fit their profile and save more money.

Another benefit is the availability of cheaper miscellaneous fees like in closing costs. Closing costs are composed of numerous fees. Some of these fees can be waived or shouldered by the seller and help buyers save money.

Downsides

While it has its benefits, using mortgage for property purchase is not considered a walk in the park. Lenders have a lot of requirements before funding a buyer’s property. They need to look for the buyer’s credit score, financial profile, and down payment before approving their loans. If they don’t find buyers capable paying off their loans, lenders will decline the application even if the buyer is actually capable of doing so. It’s crucial for buyers to leave a positive impression early on through their credit profile.

On the other hand, buyers also need to shop for lenders and mortgage rates. Thousands of lenders offer loans to buyers. However, not all companies are reliable enough and some are even fraud companies just waiting to work with unaware clients. Clients need to shop wisely for the right lender to avoid getting cheated off. This also goes the same for getting a mortgage. Settling with the current offer keeps a buyer from getting an opportunity to save money. Some lenders may have better deals that can be a budget-saver and even shorten a buyer’s loan term. Buyers can shop for deals through online or by getting quotes from multiple lenders. It may take buyers some time, but they will definitely save money in the long run.

Another disadvantage is things can be expensive towards closing. Not only does the buyer pay for the down payment, he also needs to pay closing costs. Without the right knowledge about lowering closing costs, buyers may pay a huge amount of money and find themselves spending more on their loans. This is most especially in cases where the buyer is not curious enough in asking about the fees. They may end up paying more than they should.

Varying interest rates may also play to people with low credit score’s disadvantage. People with lower credit score tends to pay more than those with good credit scores. This is due to lenders seeing people with tarnished credit history as high risk clients. They have the higher risk of not paying off their loans and experience foreclosures, which will also become disadvantageous to loan providers. Their high interest rates will make their mortgage more expensive in the long run unless they can refinance and take advantage of cheaper interest rates after fixing their credit scores.

Complying with numerous and different lender regulations poses challenges to borrowers. Lenders have their own requirements, which cause confusion to the borrowers.

Finally, it’s not easy to get approved of mortgage, especially for those with tarnished credit scores. Many people have been denied from one company to another simply because their credit score didn’t meet lenders’ requirements. They either find luck with other lenders or settle with expensive interest rates.

Find out what mortgage type is the best for you by using calculators like reverse mortgage calculator or get pre-approved of a loan. Understand its advantages and disadvantages to know what to expect upon approval.