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A Beginner’s Guide to Mortgages

A Beginner's Guide to MortgagesBuying a home is an exciting time, but it can also be overwhelming – especially when it comes to mortgages. Knowing all the details of mortgages can seem daunting, and it’s important to understand them before speaking to lenders or signing any contracts. Here is everything a first-time homebuyer needs to know about mortgages.

What is a mortgage?

A mortgage is a loan that you take out from a lender in order to purchase a home. Your interest rate is based on your credit score and financial history. This determines how much you must pay each month. Mortgages typically last for 15 or 30 years, depending on the loan agreement.

Different types of mortgages

There are two main categories of mortgages based on how the interest rates behave:

  • A fixed-rate mortgage is a type of loan where the interest rate remains the same throughout the life of the loan. This means that your monthly payments will remain consistent, providing you with a sense of stability.
  • An adjustable-rate mortgage may start with a lower interest rate, but the rate can change over time, which can cause your monthly payments to fluctuate.

Types of loan programs

There are several types of loan programs, which can either have fixed or adjustable rates. The most common loan types include:

  • Conventional loans meet certain underwriting standards and follow specific rules set by the U.S. government but are not backed by the government like some of the other loan types. While there are different types of conventional loans, most require a credit score of at least 620 and a down payment of 3% or more. Conventional loans can be a good option for those who have strong credit but don’t necessarily qualify for other types of loans, like FHA or VA loans.
  • FHA loans are insured by the Federal Housing Administration. These loans are beneficial for first-time homebuyers who may not have substantial savings for a down payment. FHA loans require a lower down payment than conventional loans and often have lower credit score requirements.
  • A VA loan is a special type of mortgage available to veterans and military service members and some surviving spouses. These loans are backed by the Department of Veterans Affairs and offer competitive interest rates and no down payment requirements.
  • USDA loan is a loan that is guaranteed by the US Department of Agriculture and is available to people in rural areas who meet certain income requirements.

Each type of loan has its own rates, qualifications, and terms. It’s important to research each one thoroughly to make sure it fits your budget and lifestyle.

What a mortgage payment includes

Mortgage payments are a large commitment and understanding what exactly is included in them each month can seem daunting. Every payment you make on your mortgage involves some combination of the amount owed, interest charges, and other costs – all designed to help get that dream home paid off over time.

  • Principal: the principal means two things. First, it denotes the original amount you borrow. Second, it refers to the amount still owed after each payment.
  • Interest: this is the amount you pay your lender for providing your mortgage. Part of your mortgage payment will go towards interest.
  • Property taxes: your lender may collect part of your property tax bill each month and set it aside in an escrow account to pay your annual property tax. If they don’t offer this, then you’ll be responsible for paying your property tax.
  • Homeowners insurance: homeowners insurance provides financial protection against unexpected catastrophes like fires, storms, and accidents. Many lenders require it as part of a mortgage agreement. Some may tuck it away as a portion of each payment into an escrow account so that when premiums are due, they’ll be handled without any hassle on your end.
  • Mortgage insurance: if your down payment is less than 20%, you may have to pay for mortgage insurance. This helps protect your lender from a potential default on the loan and comes in two forms: private mortgage insurance (PMI) for conventional loans or FHA mortgage insurance for loans backed by the FHA. PMI can eventually be canceled when your home equity increases while FHA has its own set of conditions that can last throughout the life of the loan.

A Beginner's Guide to MortgagesFinding the right lender

When it comes time to apply for a mortgage, the most important step is finding the right lender. It’s essential to shop around and compare various lenders’ interest rates, fees, and repayment terms before making any decisions. If you’re working with a new home builder, it may be worth checking to see if they have preferred lenders. These lenders have a working relationship with specific builders and can streamline the financing process.

Qualifying for a mortgage

In order to qualify for a mortgage, you need excellent credit, stable employment history and proof that you can repay the loan over time. The lender will look at your income level, debt-to-income ratio, savings history, job stability and other factors as part of their due diligence process. They may also require additional documentation such as tax returns or bank statements.

Applying for your loan

Once you have chosen the right lender and determined which type of loan best suits your needs – it’s time to apply! The application process usually involves filling out some paperwork and submitting documents such as pay stubs or tax forms that show proof of income.  Pay off prior debts before applying. This could result in lower interest rates or better terms overall.

Understanding all aspects of financing can seem intimidating at first glance! Be sure that you do thorough research when looking into all types of mortgages so that you get one that fits both present-day needs as well as long-term goals like retirement plans or future investments in mind.

A Beginner's Guide to MortgagesPartner with S&A Homes

We know there’s no such thing as a one-size-fits-all solution, especially when it comes to financing your home. That’s why we partner with a variety of lenders and banks to ensure that we are able to offer loan programs that are specifically tailored to each purchaser’s needs. Contact us today to learn more about our home financing solutions.

S&A Homes offers a variety of new home communities and floorplans in the most sought-after locations in Central and South-Central Pennsylvania. We can also build your dream home on your own land! For more details, visit or call 1-855-SAHOME1.