Basic Mortgage Information
A mortgage is the loan you took out with a bank or mortgage broker to buy, build or substantially improve your primary residence. As part of the mortgage loan, you have a specified period of time to repay the loan, and you personally guarantee that you'll repay the money you've borrowed. There are many types of mortgages. The type you choose usually depends on the length of time you think you'll be in your home or your other financial obligations.
Below is additional mortgage information:
- What type of mortgage is right for you?
- How do I know if I can get a mortgage?
- How do I find a lender?
- Are there tax benefits to getting a mortgage?
- What else do I need to know?
What type of mortgage is right for you?
There are several different types of mortgages and it’s important to know what mortgage is best for you and your personal situation. Common mortgage types include:
- Fixed-rate mortgages – These mortgages offer an interest rate that will never change over the life of the loan. The length (known as the term) of your fixed rate mortgage can be 15, 20 or 30 years. Note: The higher the interest rate, the higher your monthly mortgage payment.
- Adjustable-rate mortgage – An adjustable-rate mortgage (ARM) has an interest rate that changes based on varying market rates and economic trends. An increase in the interest rate will result in a higher monthly payment.
- Federal Housing Administration Loans (FHA) and Veterans Administration (VA) Loans – Government housing loans help lower the costs of mortgages so more people can afford to own their own home. Only approved lenders can offer these loans, and the property must meet required standards.
How do I know if I can get a mortgage?
To determine if you can get a mortgage loan and make mortgage payments, a lender will:
- Look at your employment and credit history. The lender will want to see financial stability.
- A potential lender will look for steady employment – with a single employer for the past two years or at least employment in the same field.
- They will look at your credit history and note late payments. Lenders pay particular attention to any rent or mortgage payments that were more than 30 days past due.
- In order to qualify for a mortgage, most lenders require that you have a debt-to-income ratio of 28/36. This means that no more than 28 percent of your total monthly income (from all sources and before taxes) can go toward housing, and no more than 36 percent of your monthly income can go toward your total monthly debt (this includes your mortgage payment).
- The lender will also verify your bank account information.
Based on the type of mortgage you're interested in, lenders will obtain, or ask you to provide, some or all of the following financial documentation:
- Credit report
- Pay stubs for the past 30 days
- W-2 forms for the past two years
- Information about debt obligations, including car loans, student loans, tax liabilities, liens (including federal tax liens), bankruptcies, etc.
- Recent statements from your checking, savings, mutual fund or other accounts
- Tax returns for the past two years if you're self-employed
- Proof of any supplemental income
- Records of any negative credit accounts that have been paid off
- Records of child support or alimony
How do I find a trustworthy lender?
You can get a mortgage from many different sources, such as mortgage companies, commercial and community banks, credit unions, mortgage brokers and other financial institutions. When looking for a mortgage lender, it's important that you find someone who will work with you to meet your needs. To find a trustworthy lender, you can:
- Contact your bank, credit union or financial institution (they may offer better mortgage terms to their own customers)
- Talk to a real estate professional
- Consult a non-profit housing agency
- Ask family members, friends and coworkers for personal recommendations
- Look online, in your local newspaper or in the telephone book for a lender
Are there tax benefits to getting a mortgage?
If you itemize your tax deductions, you may be able to deduct the interest you pay on a home mortgage on your income tax return. You will need to use a Schedule A to find out if your total itemized deductions are more than the standard deduction.
What else do I need to know?
While most mortgage lenders and brokers have your best interests in mind, there are lenders that may try to take economic advantage of you. There are lenders that target people with low credit scores, who may have fewer credit choices or are perceived as higher credit risks. Unscrupulous lenders often reach out to elderly and low-income homebuyers, minorities, women, people with less than perfect credit and people who know very little about home loans and mortgages.
Be suspicious of anyone who offers you “bargain loans,” whether they mail or e-mail you an offer, call you on the phone or come to your door. Avoid promises of “No Credit? Bad Credit? No Problem!”
For more information on how to protect yourself from unfair or deceptive lenders, contact the Bureau of Consumer Protection in your state.
Protecting Your Identity – Caution: Under no circumstances should you sign blank forms giving your lender permission to obtain tax or personal financial information on you. Be specific about personal information that you grant authority for lenders to obtain in the verification process. You should confirm the name of the lender designated to receive the information, insert the specific information that you wish released, and date the authorization ( e.g., Form 4506, Request for Copy of Tax Form, or Form 4506 – T, Request for Transcript of Tax Return, should always specify the tax years to be released).
