Mortgage loans can be really confusing. There’s so much jargon involved and it can feel overwhelming to have to crunch so many numbers. Learn more about what a mortgage loan is, how to figure out what the best ones are for you, and what to look out for when accepting a mortgage loan agreement.
What Is A Mortgage Loan?
A mortgage loan is an agreement between you and a loan provider (usually a bank) where you agree to give the loan provider some ownership rights to the home you’re going to purchase with said loan. Basically, you borrow money to buy a house to move into and your house becomes collateral for the bank. The loan provider then becomes the party you will be paying the house off to because they’re the ones you’ve borrowed the money from.
Besides the principal of your loan (which is the price of the house after your down payment), the interest rate of your mortgage is something you should carefully focus on. The two main types of mortgages come with either a fixed interest rate or a fluctuating interest rate better known as an adjustable-rate mortgage loan (ARM loan).
Fixed interest rate loans do not change their interest rates over time. If you borrowed a loan for $300,000 at 3% for example, your interest would remain the same over the life of that loan.
However, ARM loans’ interest rates can fluctuate after a certain amount of time. For example, if you took out an ARM loan with a three year interest rate of 3% it could go up or go down after those three years.
Finding the right type of mortgage loan with the best interest rate will depend on the principal capital of the home, the total calculated repayment amount, the time period of your repayment plan and more. To get referrals to experienced loan officers with great track records speak to an experienced San Francisco real estate agents at Danielle Lazier + Associates to choose the best mortgage loans and interest rates for you.
The lifetime of a mortgage loan repayment is often 15 or 30 years, though there are plenty of exceptions — another reason to speak with an experienced real estate agent. Generally, the lower the repayment-plan time is, the lower your total payout will be, however, your monthly payment will be higher. Fifteen year mortgage loan repayment schedules tend to have lower interest rates so if you can handle the slightly higher mortgage loans, they’re often the better option.
Because of the amortization (repayment schedule) of the loan, it’s wise to pick a 15 year plan or be committed to your home for five years or more. During the first few years, you’ll actually only be paying off the interest of the loan and very little if any of the principal amount. This means that even after a few years, you’ll have little to no equity of your home. If you were to sell it, the only way you’d earn some of that money back or make a profit is if the home went up in value, which cannot be predicted, even in San Francisco’s reliably upward trending real estate market. You may break even, but in the worst case scenario, you’d end up losing money. So when you’re shopping for a home, make it a careful, and intentional, search. Use a leading real estate agent like Sally Thompson of Danielle Lazier + Associates to help you find the dream home you won’t want to leave.
Because homes are often bought and sold so quickly in San Francisco, and because of their premium prices, it’s critical to get your finances organized very early in the home-buying process. Step number one is finding a qualified agent who can give you a stellar referral to a great loan officer. From there, your agent will work with you to find a home that is perfect for your budget and your lifestyle while you loan officer helps you sort your finances. Buying a home in San Francisco is definitely a team effort.
Other Mortgage Loan Factors
Here are some other things to think about when you get a mortgage loan:
- Early payoff penalties: Paying a little more than your minimum monthly mortgage payments when you can will help keep your total payout lower. However, be sure your mortgage loan agreement does not include early payoff penalties. These penalties charge you for trying to pay off more than the payments scheduled in the amortized loan schedule.
- Flipping houses: There are many people who purchase run-down, fixer-upper homes, remodel and upgrade them, then sell them for a new higher price because they added so much value to the home. It’s a very common practice in the real estate industry (it even has its own TV channel!) Flipping houses is a way to ensure that you can make a profit even when you have very little equity since the home was already very lowly priced because it needed so much time and resources invested into it. It is incredibly time-consuming and is usually only worth it when you’re able to either complete a lot of the remodeling work yourself or you have the funds and skills to hire contractors to complete the work for you while still making a profit. You can “think like a flipper” and ask your real estate agent which upgrades will generate the most return on investment (ROI) the fastest.
- Government & mortgage loan programs: There are many programs available to help you qualify for a mortgage loan, reduce the percentage of down payment you have to give, and more. Certain programs, such as Veteran Home Loans, provide options like 0% down payments, lower interest rates, and more.
Because there are lot of options, and new loan products are always being developed, it’s important to get a great referral. We’re happy to help!
Find The Perfect Home And The Perfect Loan
You’ve got to find the perfect home before you can finalize your specific loan and lock in the rate. Contact Danielle Lazier + Associates and let San Francisco’s leading real estate agents find the perfect home for you.