In today’s housing market, understanding mortgages is more important than ever. While there are many new and creative ways to finance a home, there are still three basic aspects of a mortgage that everyone should know about: monthly payments, upfront fees and down payments. Since mortgages usually involve a long-term commitment, it’s important to understand how they work.
- Monthly payments: The amount needed to pay off the mortgage over the length of the loan. This includes a payment on the principal of the loan as well as interest. There often are property taxes and other fees included in the monthly bill.
- Upfront fees: Various costs you pay for the financial institution to process your loan.
- Down payment: The upfront portion of the home price you pay to secure a mortgage. Making a higher down payment, with a few rare exceptions, will generally lead to a better deal – a lower monthly payment, often a lower mortgage interest rate, and a faster way to build home equity.
There are two main types of mortgages: a conventional loan, guaranteed by a private lender or banking institution, and a government-backed loan. There are several other types, but these are the most common.
Most government-backed mortgages come in one of three forms:
- Veterans Administration (VA) loans – These loans benefits veterans who served in the armed forces on active duty during times of conflict.
- Federal Housing Administration (FHA) loans – These loans were created to help people obtain affordable housing. FHA loans are actually made by a lending institution, such as a bank, but the federal government insures the loan.
- U.S. Department of Agriculture (USDA) loans – Backed by the U.S. Department of Agriculture, these loans are for rural property buyers who are unable to secure a home loan from traditional sources due to income that’s below average for their area.
To compete in today's marketplace, it’s smart to find a mortgage lender who caters to the unique needs of the borrowers. One such Lowcountry lender is Southstate Bank, which offers mortgage loans to meet the needs of many types of borrowers, from first time home buyers to those wishing to build or buy their dream house, SouthState has a wide range of solutions. In addition to your standard conventional mortgage loans, Southstate also offers Portfolio Loans – a kind of mortgage that a lender originates and retains instead of offloading it on the secondary mortgage market. These loans can make sense for real estate investors, self-employed borrowers and individuals who may have had a recent financial hit that affected their credit scores.
After you choose your loan, you’ll decide whether you want a fixed rate or an adjustable rate during the life of the mortgage. Your choice determines the interest you’ll pay.
According to Joann Terrel, senior vice president and mortgage banker at SouthState in Mount Pleasant and an Isle of Palms homeowner, “The choice of going with a fixed or adjustable rate depends on current market conditions and the home buyer or investor’s risk tolerance. An adjustable-rate mortgage allows the interest rate on your loan to vary with prevailing interest rates. So if rates go up, so will your mortgage interest rate and monthly payment. If rates go down, your monthly payments will drop.”
There are many other variables that mortgage professionals consider when working with you to find a loan that’s the best fit for your situation such as income, down payment amount and credit score. Depending on your loan amount, you might need a conforming or nonconforming loan, upfront fees (also called “points”), interest rate “locks” and private mortgage insurance, which protects both borrowers and lenders.
Although the current housing and mortgage markets are facing some uncertainty, an experienced mortgage banker can help navigate troubled waters to get you the home you want, whether it’s a rental investment or for personal use.
“I’ve worked in the mortgage and lending fields for over 25 years and while each year presents unique challenges, I can safely say that I’ve seen it all,” she says. “The industry is cyclical; we’ve been through this before and will get through it again.”
