At first glance, mortgages may look like an endless, roiling sea of numbers. And truth told, between interest rates and credit scores, it’s all enough to make most home buyers feel like they’re drowning.
But that doesn’t mean the math has to be a killer—all you need is our handy primer to help you decipher the main figures that you really should understand, at least as a starting point. We’re here to help!
A basic understanding of how a mortgage works can save you major money. So be sure to find a lender and Realtor® who are happy to answer all your questions, and study up online (realtor.com®has a ton ofmortgage articles) and learn to make smart choices in order to save big.
Percentage of borrowers who apply to only one lender, according to the CFPB survey.
Here’s the thing: Not bothering to shop around can cost you. When buying a new car, most folks generally visit several dealerships to ensure they’re getting the best deal. The same is true when getting quotes from lenders.
So get loan estimates from at least three lenders, and look closely at the terms. And make sure you’re doing an apples-to-apples comparison before deciding which lender you want to use.
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Not sure if your own credit is in such good shape? Go toAnnualCreditReport.com, where you can get a free copy of your report every 12 months. Your report doesn’t include your credit score, though—you’ll have to pay a small fee for that.
If you’re a few points shy of the 740 mark, there are steps you can take toboost your score, including increasing the limits on your credit cards and getting errors on your credit report removed.
Percentage in cash that borrowers must make for a down payment on a conventional loan. Can’t afford a 20% down payment? See our next point…
FHA loans let borrowers qualify for a mortgage with a down payment as low as 3.5%. (The exception: People with credit scores between 500 and 579 are still eligible, but they must make down payments of at least 10%.) FHA loan limits vary by county; go toHUD.gov’s FHA mortgage limits database to learn more, and make sure you work with anFHA-approved lender.
Anadjustable-rate mortgageoffers a lower fixed interest rate for the initial period, but the rate can change over time, depending on market conditions. For instance, a seven-year ARM might be a better option than a 30-year fixed loan if you’re buying a home but plan to sell it within five years.
Percentage of home buyers who used retirement savings to make their down payment, according to the National Association of Realtors®’2015 Profile of Home Buyers and Sellers. But if you’reconsidering buying a home by dipping into your 401(k) or IRA to come up with the cash for the down payment, beware. If you borrow from either plan before age 59½, you’ll get hit with a 10% excise tax on the amount you withdraw, on top of the regular income tax you pay on withdrawals from traditional defined contribution plans.
Liability percentage if you co-sign on a home mortgage. Unfortunately, many parents don’t understand what they’re agreeing to when they offer toco-sign on a loanfor their kid. As a co-borrower, you’re responsible for any missed payments. If your child falls behind on the mortgage payment, that blunder coulddamage your credit.
More from realtor.com: What Your Mortgage Broker Wishes You Knew
Daniel Bortz is a Realtor in Maryland, Virginia, and Washington, DC. Daniel is also a writer with a background in financial reporting and editing. His work has appeared in Money magazine and National Geographic Traveler and on CNNMoney.com, Entrepreneur.com, TheFiscalTimes.com, USnews.com, and HuffingtonPost.com.
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