What Is a Mortgage?
Mortgage is a loan that allows you to buy your home without paying the full purchase price upfront. You agree to pay the lender back over time in a series of regular payments that are divided into principal and interest. You also promise the property as collateral for the loan, giving the lender the right to take the property in the event you fail to pay the balance owed. The mortgage process is typically outlined in a legal document called a deed of trust.
There are many different types of mortgages, but they generally share the same features. The borrower pledges the property to the lender as collateral and typically must meet certain criteria, including a credit check, proof of income and sufficient cash reserves. The mortgage loan also goes through a rigorous underwriting process that includes an appraisal of the property’s value and an analysis of the borrower’s ability to repay the debt.
When it comes to a mortgage, the term used most often is “home loan.” However, there are other types of mortgages that may be offered by lenders, such as commercial mortgages. The most popular mortgage is a conventional mortgage, which is not backed by the federal government and can be obtained through any bank, credit union or online lender.
Before applying for a mortgage, it’s important to prepare by examining your credit score and checking your credit report for inaccuracies. This will help you get a better idea of how lenders might view your creditworthiness and can also allow you to correct any errors that can cause delays in the mortgage approval process. In addition, you should look at the annual percentage rate (APR) of various lenders to compare costs. This number combines your interest rate with other fees and charges and can provide you with a more accurate picture of the true cost of borrowing money to buy a home.
If you’re not able to keep up with your mortgage payments, you can ask for a forbearance from your lender. This option lets you stop making payments for a specific period of time that varies by lender, but most include repayment options when the forbearance ends.
You can also contact your loan servicer to discuss other options if you’re unable to keep up with your payments. These options can range from a repayment plan to refinancing. If you decide to refinance, be sure you shop around to find the best deal.
In the event you are unable to repay your mortgage, you will be considered foreclosed. This process can be done through a court in a judicial foreclosure or through a non-judicial sale to a trustee. In either case, the foreclosure will result in your home being sold by the lender to pay the amount owed on the mortgage. If you are not able to refinance your mortgage, you may be eligible for loan modification, which can include lowering your interest rate or extending the terms of your loan.