You have decided to buy a home, but you are not sure you know what the next step is. For most they start by looking for homes online and start “window shopping” in the cyberspace. This can be a folly for two reasons. Number one, if you don’t know what price you can qualify for you may be falling in love with homes, you cannot afford. Number two, even if you can afford the homes you are looking at, you may see the home of your dreams quickly snatched up by someone else while you are scrambling to get qualified.
So, what should the first step be you ask? Good question. The first step is learning about mortgages and how they work and then getting “qualified” for one.
Before you undertake committing the next 30 years [though on average most owners will hold the mortgage for 13 years] to making payments on something you should understand what it is and what you are paying for. Most of the mortgage payment will cover interest payment at first, therefore it is favorable to have lower interest payments. At the beginning of the mortgage period very little goes to principle but as you get closer to the end of the mortgage payment, the interest becomes much, much less. This is called Amortization.
Principle and interest are not the only things you pay when you make your monthly mortgage payment. A mortgage is a “lien” or “note” against the property. If you stop paying the mortgage the lender can foreclose on the property and take ownership. Since the mortgage company has a vested interest in the property they require, as part of the mortgage contract, homeowners to carry insurance and to pay their property taxes. This protects the mortgage lenders investment. The lender essentially collects the payment for insurance and property taxes monthly and pays them when they are due. This is a way a monthly payment can change, even though interest rates are locked for the life of the loan.
Once you feel you understand the basics of the mortgages then it is time to get qualified. Getting qualified is getting a lender to vouch that they have reviewed your finances with you and based on that information they can determine that you would qualify for a loan of up to x amount of dollars.
The lender will review things like; how much you have for a down payment [Find out if you qualify for down payment assistance], what your income is and what your credit report looks like. The lender can also you help determine what your monthly payment would be.
After that it is time to start looking for a home!