Skip to main content
_FB_2018-Icons-finalized-cleaned-up_new_FB_2018-Icons-finalized-cleaned-up_newGroup 9
Find Your Local Branch
Back
Scroll to top

Mortgage Basics

4 min read
Woman and son sitting on steps of house smiling at camera

Ready to talk to an expert?

Find A Location Get In Touch

You’re finally ready.

You’ve been saving up for a long time, you know how many bedrooms you want, you know what your ideal backyard looks like, and you can’t wait to meet your future neighbors.

You are prepared to purchase your first home.

As exciting as this time in your life can be, it’s important to remember that this is a very big decision. Before you take out a loan, you need to be sure that you understand the basics of the mortgage process.

Qualifying and Getting Approved for a Mortgage

Pre-qualification

If you’re going to start looking at houses, you will need to have a price range in mind. This is where getting pre-qualified comes in.

A loan officer can briefly review your information including debt, income, and assets to give you an idea of how much you will qualify for. Usually, this is a quick and simple process that can be done in person or over the phone.

Pre-approval

Just because you pre-qualify for a loan amount doesn’t mean that you will actually be able to get a mortgage for the full amount.

If you want to know exactly how much money you have to spend, you need to get pre-approved. A pre-approval means that the lender collects and thoroughly reviews all of the necessary financial information in order to commit to a specific loan amount.

Types of Mortgages

Fixed-rate mortgages

A fixed-rate mortgage means that the interest rate and mortgage payments are determined when the mortgage is taken out and never changes. These are the most popular types of mortgages and are generally 15-year and 30-year loans.

By spreading out the loan over a long period of time, 30-year fixed rate mortgages provide the borrower with lower payments.

While this may free up money for the borrower to use for other things, these loans usually come with a higher interest rate than 15-year fixed rate mortgages.

In addition, the borrower will pay significantly more interest throughout the life of the mortgage and it will take longer to build equity in the home.

Fifteen-year fixed-rate mortgages, on the other hand, offer lower interest rates but higher monthly payments in order to pay off the balance in half the time.

By cutting the loan term in half, a higher percentage of each payment goes towards the principal, helping the borrower build equity faster than a 30-year fixed-rate mortgage.

Adjustable rate mortgages (ARM)

If you’re in a position where you need low monthly payments early in the loan term, an adjustable-rate mortgage may be a good option.

Interest rates start low and increase over the life of the loan based on market interest rates. The borrower takes on a degree of risk with these types of loans as interest may fluctuate.

Components of a Monthly Mortgage Payment

Principal

The principal is the full amount borrowed to purchase a home. A borrower can reduce the amount of money he or she is borrowing by putting down a larger down-payment.

The quicker a borrower pays the principal, the more equity they have in the home.

Interest and points

Mortgage interest is the fee that the lender requires the borrower to pay in order to borrow money. In addition to interest, some lenders also charge points.

A point is equivalent to 1% of the total balance borrowed.

Property tax

In order for a community to provide public services such as roads, schools, and parks, it must require property owners to pay property tax.

This tax is based on a percentage of the value of your home.

Insurance

There are two basic types of insurance that homeowners will pay each month for their home.

The first is property insurance, which protects you against risks including fire, weather damage, and theft. Depending on the risks associated with your homes location, you may need to purchase fire insurance, flood insurance or earthquake insurance, among others.

The second type of insurance you may need for your home is private mortgage insurance (PMI). You may be required to purchase private mortgage insurance if you pay less than a 20% down payment on your home. This limits the risk to the lender, in case the borrower defaults on their loan.

Get Started!

Now that you have a basic understanding of mortgages, it’s time to start looking for your new home! If you’d like to learn more about mortgages and the home-buying process, feel free to reach out to a mortgage specialist at a First Bank branch near you.

Ready to talk to an expert?

Find A Location Get In Touch
Share:
First Bank’s Good To Know Logo
Sign up for our newsletter and be the first to know about new tips, insights, and products from First Bank.
First Bank may use this email address to contact you about products, services, and promotions.

You may be interested in...

Woman looking a shoe in shoe store Business Trend Highlight: Experiential Shopping Modern digital innovations can bridge the gap between the off- and online world, and in the best case, ensure a splendid customer experience that is personally tailored, interactive, and deeply ingrained in a daily activity. 2 min read
What to Know About Joint Checking Accounts Some of the biggest causes of stress in a relationship stem from finances. If you’re considering opening a joint checking account, there are some things you should know. Here are some common questions surrounding this type of bank account. Managing a Joint Checking Account Questions about joint checking accounts often include: Q: What exactly is a joint checking account? A: A joint account is a checking account shared by more than one person. Each person on the account may add, withdraw or transfer money and has access to account records. Q: Who uses joint checking accounts? A: Joint checking accounts are common among married couples. Adults also sometimes share a joint checking account with an elderly parent or adolescent child as a way of monitoring and managing expenses. Q: What are the advantages of opening one? A: Bills and expenses become easier to manage as the two people involved no longer have to determine “their share” of a utility bill, groceries, rent, mortgage or any other expense. With a joint account, any money spent is coming out of the same pile. Because the income from both parties is combined, the balance on a joint checking account will be higher than it would be for two individual accounts. This increased balance creates less likelihood that checks will bounce and can keep account fees to a minimum. A joint checking account provides greater transparency of all the finances involved in the relationship and harbors trust and communication. Q: What should we be careful about? A: A joint checking account doesn’t offer any financial privacy between partners, as both parties are able to see every transaction that occurs. Additionally, either person has the ability to take all of the money from the account without consulting the other, which can be a problem if a relationship sours. Checking Accounts at First Bank* Whether you’re considering a joint account or separate bank accounts, First Bank can help. We have a number of checking accounts designed for different needs that can put you and your partner on your way to financial happiness. Source: Investopedia: http://www.investopedia.com/articles/pf/09/marriage-killing-money-issues.asp 2 min read
Getting Married You’re Getting Married! Keep These 8 Things in Mind Getting married is not a small feat for many reasons – among them, marriage represents a new stage in your financial life. We asked three First Bank team members about what financial issues soon-to-be newlyweds need to discuss. 3 min read
Consoling a family member with a terminal illness How to Prepare Financially When Facing a Terminal Illness Learning that you or a loved one have a terminal illness isn't easy. There will be a range of emotions you must cope with, and unfortunately, plenty of administrative, medical and even legal decisions that will be need to be made. Being prepared and educated on what you or your family member might face both medically and legally can help make the otherwise difficult decision-making process more manageable. 3 min read