Ask most millennials below the age of 30 what the powerhouse of the cell is, and you’ll get a straight answer (it’s the mitochondria). Ask them about conforming or non-conforming loans or rate locks, don’t be surprised if you get a blank stare and nervous sweats.
Mortgages are an inescapable part of our lives. But unfortunately, the intricacies of it aren’t exactly laid out well in school, with the topic of loans being relegated into an obscure elective in college, if at all.
Many of our younger generations won’t have any knowledge of mortgages until they actually start trying to get one. Of course, a mortgage loan officer in Plymouth may give very different advice from a mortgage loan officer in Ann Arbor. That’s because loan rates differ per county, provider and state.
The best way for any young adult (yes, millennials, you’re adults now!) to get an accurate and financially-responsible mortgage loan is for them to understand the very basics of mortgages.
What is a Mortgage?
In its most basic sense, a mortgage is a loan that you take out to buy yourself property or land. The loan is usually “secured” against the value of your home until the loan is paid off. A mortgage is made up of three parts: a down payment, monthly payments and fees.
The down payment is an up-front payment you have to make in order to actually secure the mortgage. The larger the down payment, the better monthly payment plans you can access. Monthly payments is the money you pay the lender every month until your mortgage is completely paid off. These monthly payments include paying off the loan, paying an interest to the lender, paying for relevant property taxes, and other miscellaneous fees that the lender may add on.
Types of Mortgages
There are generally two types of mortgages: conventional loans, which you can get from either a bank or a private lender, and a government-backed loan. Private lenders will often have their own specific rates and payment plans.
Meanwhile, there are three common types of mortgages that the government offers:
- Veterans Administration (VA) Loans – A type of loan offered by The U.S. Department of Veterans Affairs to military veterans, this loan usually offers friendlier rates than civilian loans but is only available for retired and active duty members of the United States armed forces
- Federal Housing Administration (FHA) Loans – The FHA is a federal agency in charge of providing affordable housing to as many people as possible. With this type of loan, it’s the FHA who takes out the mortgage from a private lender (usually a bank), insuring the loan for you. This is one of the cheapest mortgage options for most people, but it might not be able to cover more expensive types of property.
- U.S. Department of Agriculture (USDA) Loans – USDA loans are a type of mortgage available for people who are looking to purchase rural property. This is often offered to buyers who are without “decent, safe and sanitary housing,” are unable to secure a home loan from traditional sources and have an adjusted income at or below the low-income threshold for the area where they live.
Here’s the good news: many mortgage loan officers are very knowledgeable about these things, and if you’re trying to secure a mortgage for the first time, it’s a good idea to ask them (or the Consumer Financial Protection Bureau).