First-Time Home Buyers
Understanding Your Mortgage
Let's talk about mortgages. Most first-time home buyers need one to finance their home (unless you happen to have hundreds of thousands of dollars sitting in the bank). There are a lot of loan options that vary greatly from lender to lender and from buyer to buyer. This means it's important to understand what you're looking for and talk to a lot of different lenders to ensure you're getting the best deal possible. As you're searching for your first home in Charlotte or its suburbs, use this guide to learn about home loans, shop for the right product, and choose the right lender.
Types of Mortgages
There are four basic types of mortgages used by the majority of home buyers: conventional mortgages, FHA mortgages, VA mortgages, and USDA mortgages. Here's a breakdown of each type of loan.
This is the standard loan used by buyers with good to excellent credit who make down payments of at least 10%. However, there are programs that offer options for lower down payments based on buyer credit and location.
These loans often apply to buyers with lower credit scores, as they offer a down payment as low as 3.5% and lower interest rates. However, FHA mortgages do also require mortgage insurance premiums, which can result in higher overall costs.
All veterans and active military members qualify for VA loans. These offer up to 100% financing, simplified loan approvals, and lower interest rates. They can be much lower than conventional loans.
These loans are available to buyers in rural or low-density areas and offer up to 100% financing and below-market interest rates. Their ideal buyers are of average means, have lower credit scores, and are buying modest homes. Additionally, because of the government’s loose definition of the term "rural," some of the smaller communities surrounding Charlotte will qualify for this loan.
Key Components of Your Mortgage Payments
There are four main components to a mortgage payment: principle, interest, taxes, and insurance, often abbreviated as "PITI." Here's a breakdown of each component of your mortgage:
- Principle: This is the repayment of the initial amount you borrowed from your lender (in other words, the price of your home).
- Interest: This is a payment to the lender for the money borrowed (and is then added on to the initial price of your home).
- Taxes: Your annual city and county taxes assessed on your property are divided by the number of mortgage payments you make in a year and added into your mortgage.
- Insurance: Your monthly homeowner's insurance payment covers you against various hazards and is added to your mortgage payment.
Each month you're working to pay off your mortgage. At first, you'll mostly be paying interest, but as you make more mortgage payments, a larger portion goes toward the principal. (The reason for this payment structure is due to a mortgage's amortization schedule, which you can read more about on Investopedia.) As you continue to make payments, you'll start building equity in your home.
Going Loan Shopping
Before you decide on any particular loan or lender, it's important to do your research. That means meeting with at least two different lenders to ensure that you're getting the best rate possible. It's also important to understand two different types of interest rates offered by mortgage lenders:
- Fixed-Rate Mortgage: The interest on an FRM will not change, so your monthly payments won't change, making them very predictable.
- Adjustable-Rate Mortgage: The interest rate on an ARM will often be lower initially, but as interest rates do fluctuate with the market, they can be somewhat unpredictable or even result in higher payments.
We can recommend mortgage lenders in the Charlotte area if you have not already chosen one. Just call us at 704-400-4578 and we can help you get started.
We'll Help You Buy Your First Home
Buying a home in Charlotte is exciting, and it can be a breeze if you have the right resources and best experts on your side! We're here to help you every step of the way, from understanding the home buying process to picking the right lender to looking at properties to closing on your new home. Have questions about buying your first home in Charlotte or its suburbs? We're more than happy to talk with you! Contact us and let's chat.