There are many aspects of buying a home that might cause confusion and raised eyebrows, and few more so than mortgages in Spokane. But, simply knowing the facts can make this topic much less daunting. In this post, we’ll go through exactly what mortgages are and how they work.
What is a Mortgage?
A mortgage also called a deed of trust depending on what state you call home, is a legal document that you sign as part of the home buying or refinancing process. A copy of your mortgage is filed with your county of residence as a lien, or legal claim, against your home. It gives your lender the right to take back your home if you don’t pay back your loan.
The term mortgage doesn’t only mean the physical document. It can also refer to the loan itself. If you buy a home with mortgages in Spokane, you’ll make a monthly payment towards the loan until you’ve paid off the full amount.
You may be wondering, what exactly is my mortgage paying for? Let’s break it down.
Principal
No no, relax – this isn’t someone that calls you into their office if you’ve been a bad homebuyer. The principal balance of the loan means the amount that’s still left to pay back. You can find this by subtracting the dollar amount of all payments you’ve made from the original dollar amount of the loan.
Interest
Interest is money paid at a regular interval for the use of money lent. Your interest rate on your mortgages in Spokane determines how much money you’ll pay to the lender in exchange for taking out your loan. Interest rates vary depending on loan and lender, so you should always do your research beforehand. You want to make sure you’re getting the best rate. When doing so, you may want to think about applying for a mortgage with several different lenders. This can help you make sure you’re getting the best interest rate and lower your costs overall.
Taxes
When you buy a home, your mortgage lender might collect property taxes at the same time as your mortgage payment. They do so in order to keep that money in an escrow account and pay your property tax bill on your behalf once it comes due.
Homeowners Insurance
Your mortgage lender might do the same thing here as with your property taxes: collect your homeowner’s insurance premiums along with your mortgage payment and pay your insurance bill on your behalf from there. Homeowner’s insurance is important to have, as it can cover damage from all kinds of catastrophes. Should something happen to your new home, you don’t want to be caught unprepared.
Mortgage Insurance
Another type of insurance that might be included in your mortgage payment is mortgage insurance. Mortgage insurance is meant to protect your lender from the risk that you might default on your loan.
Together, these are known as PITI (or PITIMI) for Principal, Interest, Taxes, Insurance and Mortgage Insurance. When discussing variations in your loan type, it’s always a good idea to make sure that you are talking about the same thing. If your lender is talking about Principal and Interest (the actual loan) and you think they are talking about your whole payment (PITI), you may be in for a big shock when you get your Loan Estimate!
5 Types of Mortgages in Spokane
Now that you’re a little more familiar with what exactly mortgages in Spokane includes, let’s look at five different types of mortgages so you can see which type might be best for you.
Fixed-rate mortgages
A fixed-rate mortgage is as it sounds: a mortgage whose interest rate does not change over the life of the loan. This type of mortgage is available in terms of up to 30 years, with the 30-year length being the most popular. Many people choose this type of mortgage and choose to have it run over a longer-term. This will make their monthly payments both more affordable and predictable. If you’d like to keep each month’s payment low and don’t want to see it shift up or down, a fixed-rate mortgage might be the right choice for you.
Adjustable-rate mortgage
An adjustable-rate mortgage, or ARM, is a mortgage in which your interest rates may rise or fall as mortgage rates change. These aren’t completely dissimilar from fixed-rate mortgages, however, as many include a period where the interest rate is fixed. For example, some ARMs include a 5 year period during which the interest rate is fixed, and after which the interest rate is subject to change once per year based on a benchmark index of interest rates. An ARM might be a good idea if its fixed-rate period is fairly long and its interest rate is lower than that of a 30-year fixed-rate mortgage. This way, your ARM shouldn’t cost you an arm and a leg.
Balloon mortgage
A balloon mortgage is one of the riskier mortgage options and is aimed at homebuyers who anticipate earning a higher income at the end of their loan period than they do at the beginning. Because of this, payments in a balloon mortgage start low and then inflate towards the end of the loan. Some buyers choose this type of mortgage because they intend to refinance their home before the balloon payments get too high.
FHA mortgage
FHA stands for the Federal Housing Administration. An FHA mortgage is a loan backed by this government agency. This type of mortgage may be a good choice for first-time homebuyers, as it typically requires lower down payments and lower minimum credit scores to qualify.
VA mortgage
A VA mortgage is a loan guaranteed by the US Department of Veteran’s Affairs or the VA. It requires little to no money as a down payment and is available to veterans, active duty service members, and certain eligible military spouses.
Conventional mortgage
FHA and VA loans are considered “Government” loans because they are insured by the government. A Conventional mortgage carries more risk for the lender, require a higher credit score but have some advantages over the government loan.
Pick a Local Lender
We recommend that you rely on your Realtor for information about purchasing your new home. We also highly recommend that you rely on your lender to guide you in making the best decision regarding your loan. It is very important that you work with a Loan Officer (LO) that you can trust! They will consider your entire financial situation and recommend the best course of action for your particular scenario!
With mortgages, as with most anything else, the more you know the better. Now that you have a better understanding of what mortgages in Spokane are, you can move forward. Hopefully, this will get you into a new home with confidence.
I have worked with some fabulous lenders (and some not so fabulous)! If you are looking to get started towards buying a home, or you are just curious about refinancing your mortgages in Spokane, let me know and I’ll connect you with an amazing lender!
