So you want to buy a house…
Would you buy a TV without doing your research? Probably not. You’ll spend hours pouring over Amazon reviews and asking your best friends what kind of TV they bought, and whether it’s worth the extra money for 5 more inches of screen. And what does LED2160p4K mean anyways? So why would you buy a house without doing the same amount of research? A house is the biggest purchase that you’ll ever make. Whether you buy a one bedroom condo, or a 5 bedroom colonial, it is the largest asset you will own.
Since homes are expensive, a mortgage is necessary (unless you have hundreds of thousands of dollars in cash sitting around). But even if you could pay cash, there is a financial benefit to having a mortgage. Its appeal lies in the fact that having a mortgage helps you to buy an asset with the expectation that its value will increase over time, which adds to your financial portfolio, and gives you a big tax break.
A mortgage is a real estate loan that allows you to pay a fraction of a home’s cost (called the down payment) upfront, while a bank or private lending institution loans you the rest of the money. Just like any loan, you’ll need to qualify for it. If you’re accepted, you’re what is known as “approved.” This means that you can borrow a certain amount of money from your lender, which you’ll repay monthly over a set number of years.
You arrange to pay back that money, plus interest, over a set period of time (known as a term), which typically is 30 years. To make sure that you pay back the money you borrowed, you put your house up as collateral–so if you stop making payments, the bank can take the house away from you in a process called a foreclosure.
This Mortgage 101 Series is here to educate you on everything mortgage, from the terminology to the process. By the end of it, our hope is that you feel confident to take the leap and buy your first home!
Still have questions? Give us a call, we’re always here to help!