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Whether it’s medical emergencies, a lost job, a big move, or plain old hard times, life can throw a heck of a curveball. And sometimes, that means you don’t always have the kind of cash to pay up-front for the big, important purchases in life. When it comes to buying a home, it’s pretty likely you’ll need a mortgage to help you with that price tag.

If you’re a first time buyer, you may have a very negative, but unclear idea of mortgages. Let me help demystify what a mortgage is and how it works so you can move forward without fear.

WHAT IS A MORTGAGE?

A mortgage is a loan given by a bank or a mortgage lender to help you finance the purchase of a house. i.e. It allows you to pay off your home over time. In return for financing your purchase, you will be charged interest. Interest is basically the fee that you pay the bank or lender for their help with financing your home. Makes sense, right?

WHAT DOES IT COST?

The cost of a buying a home breaks down to four components: Principal, Interest, Taxes and Insurance.

Principal: Principal is the amount of the money you owe to the bank or mortgage lender. (If you have a $400,000 mortgage loan, the principal balance is $400,000 and decreases with each payment until you reach $0.)

Interest: Interest is the price that you pay to borrow money from your lender. The amount of each interest payment is based on the amount of principal you still owe.

Tax: The property taxes you pay as a homeowner are calculated based on the value of your home.

Insurance: If you have a mortgage, your lender will require you to get homeowner’s insurance to cover the home. If you pay less than 20% on your down payment, you will also be required to pay for mortgage insurance which protects the lender in the event that the mortgage isn’t paid back.

HOW DO I GET A MORTGAGE?

First and foremost, start saving! The more you can afford to pay on your down payment, the less you will have to pay per month. If you can’t afford to save up for a large down payment, there are also down payment loans that you can look into.

Second, reach out to me so I can put you in touch with a great mortgage lender in the area. You could definitely run into some bad deals if you don’t know your options, so I’ll be happy to point you in the right direction!

Third, when you’ve found your mortgage lender, you can begin the Pre-Approval process. This will include running through your credit report and finances to determine what size mortgage for which you’re qualified (i.e. how expensive a house you can afford). It is essential to take this step as soon as possible, because it can take some time. In some competitive markets, agents won’t even show you homes until you are pre-approved. So, if you want to be able to pull the trigger once you find a place you love, I’d recommend you take care of this well in advance.

Fourth, find that dream home! This is the fun part. Remember, you’ve been pre-approved for only so much, so stay within your means. You can always improve your home later on, so it’s important to find the place that gives you the most bang for your buck. Trust me, over-spending on a home will stress you out later on!

Fifth, it’s time to close on your home! Working with your mortgage lender, you will finally own your new home!

Sixth, start making payments. Yay! Your monthly payments will be split into two: one portion will be an interest payment, and the other will go toward paying off your principal. Again, the more you can knock down that principal amount, the less your interest payments will be, saving you more money!

HOW ARE MORTGAGE PAYMENTS CALCULATED?

Your mortgage payments will be calculated based on the price of the home you’re purchasing, the size of your down payment, the length of time you will have to pay it off, and the interest rate charged by your financial institution. So, if you want to keep that interest from making a huge dent in your financial future, buy a home with a reasonable price, make a big down payment, and pay the rest off quickly.

To get an estimate on what your monthly payments would be, click the link below and use Bankrate’s mortgage calculator. Remember, you need to get pre-approved for a mortgage, so get in touch with a lender before you spend too much time dreaming and searching!

http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

Buying a home is a big deal, and paying it off can be tough. But, it doesn’t have to be scary! The more you know about the process, the less you’ll have to worry as you move forward. Now, you can stop fearing the word mortgage, and walk into that pre-approval meeting with confidence!