What You Need to Know About Mortgages

First-Time Homebuyer? Here’s What You Need to Know About Mortgages

Buying your first home is an exciting milestone! But the mortgage process can feel overwhelming if you’re not familiar with the basics. Let’s break down the essentials, so you’re prepared and confident as you take this big step.

1. Types of Mortgages

The first thing to know is that there are different types of mortgage loans, each with its own features and advantages.

Here’s a quick rundown of the most common ones:

Conventional Loans

These loans are not backed by the government and often require a higher credit score and down payment but may offer competitive interest rates.

FHA Loans

Backed by the Federal Housing Administration, FHA loans are more accessible to first-time buyers with lower credit scores and require a smaller down payment (as low as 3.5%).

VA Loans

For eligible veterans, active-duty military and certain members of the National Guard, VA loans require no down payment and offer favorable terms.

USDA Loans

Available for buyers in designated rural areas, USDA loans often require no down payment and have low-interest rates.

2. Down Payments

The down payment is the amount you pay upfront toward the cost of the home. A common misconception is that lenders require a 20% down payment, but in actuality many loan options require less:

3-5% Down

Some conventional and FHA loans allow for down payments as low as 3-5%.

0% Down

VA and USDA loans may require no down payment if you qualify.

While a larger down payment reduces the loan amount and often improves your loan terms, low down payment options make it possible to buy a home with less savings. And did you know that at Pinnacle Bank we offer additional 0% down option mortgage for certain homebuyers?

Contact your Pinnacle Bank mortgage professional today for additional details.

3. Loan Terms and Interest Rates

Mortgage terms define how long you’ll be paying back the loan. The most common loan terms are 15 and 30 years:

30-Year Fixed Rate

This is the most popular option, offering a predictable payment with a fixed interest rate for the entire term.

15-Year Fixed Rate

These loans have higher monthly payments but often come with a lower interest rate, meaning you’ll pay less over the life of the loan.

Adjustable-Rate Mortgages (ARMs)

With ARMs, the interest rate is fixed for an initial period (like 5 or 7 years) and then adjusts annually. These can be risky, as payments can increase when rates go up. Be sure to ask your mortgage  professional lots of questions to fully understand how an adjustable-rate mortgage works.

A Few Final Tips

Get Pre-Qualified

A mortgage pre-qualification gives you a clear idea of what you can afford and shows sellers you’re a serious buyer.

Budget for Closing Costs

Besides your down payment, anticipate paying closing costs. These are transaction costs associated with processing and closing the loan. These amounts can vary between loan programs and lending institutions so be sure to consult thoroughly with your lender on how much to budget for these costs.

Consider Your Long-Term Goals

Think about how long you plan to stay in the home, as this can affect your loan choice and term. A good mortgage lender can help guide and advise you which program is best suited for your long-term goals.

Arming yourself with this mortgage knowledge will make the process smoother and give you confidence as you start your home buying journey.

Happy house hunting!