So What Is a Mortgage, Exactly, Anyway?

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So what is a mortgage, exactly, anyway?A mortgage is borrowing money to pay for a home you cannot afford to pay cash for. The term “mortgage” is only used for loans for real estate. Mortgage loan usually range from about fifteen to thirty years, and vary in APR.There are several different factors that contribute to what APR you get, including your credit score, your debt-to-income ratio, national rates, price of the home, and the amount of money you will be putting down.Your credit score is based on everything you do with your money. Credit cards, car loans, student loans, bank overdraft, and defaulted bills are all sources of good or bad credit for your credit report. Your credit report is a snapshot of the last five years of how well you pay bills and handle your money. If you have been irresponsible with paying loans recently, you may have a hard time getting a mortgage on the home you want.To keep you credit score above 620, or better yet, above 700, you don’t need to have a lot of money, you just need to know how to budget and handle your money properly. Make sure you don’t take on more bills you can handle, live inside your means, pay off bills on time, and pay your entire balance of your credit cards as soon as you get the bill. Also, avoid over-drafting any of your bank accounts. You can check all three credit reports free every 12 months with Equifax, Experian and TransUnion, online.You debt-to-income ratio is the balance of how much you make, compared to how much you owe. Your debt includes mortgages, car loans, student loans, credit card bills, and other borrowed money. Your debt in this case does not include food, gasoline, or anything else you buy on a monthly basis, just what you owe someone else already. Keeping you debt-to-income ratio above 10% and below 36% is a good way to keep your credit score in balance.The cost of the home, and how much you put down, can also effect your APR. The larger percentage of the total cost of the home you are putting down will change your APR for the better. A mortgage company is more likely to loan out to someone who has saved money and is willing to part with it to buy their new home; since the homeowner already has such a vested interest in the home, mortgage lenders are more likely to loan and give better rates.So what changes the national rates for mortgages? The answer to that is very complicated, but it is based mostly on two things; the state of the economy and 10-year bond rates. 10-year Treasury Bonds are packaged and backed together for investors; when the 10-year Bond goes up, the mortgage rates go up as well.If you still have more questions about mortgages and what affects your rate, go to your local bank and ask your financial advisor how to get the best rates.

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