What Is a Mortgage?
Mortgage is a loan that allows a borrower to purchase and own property such as a home or plot of land. Mortgages are typically structured with a principal balance and monthly payments that include both the principal and interest. This type of debt requires a lot of time and research to understand, but it is an essential tool for home buyers who may not have enough money upfront to purchase their dream homes in cash.
Homebuyers who use mortgages to buy a home will need to go through a lengthy process known as underwriting. This involves a thorough look at all aspects of the buyer’s financial picture, including their income, credit history and property value. The underwriting process also double-checks that the title on the property is clear and free from liens or claims against it by other parties. This is why many borrowers choose to work with lenders who preapprove them, as it helps shorten the underwriting process and saves money by eliminating some of the fees that homebuyers need to pay.
When a person takes out a mortgage, they are legally pledging their home to the lender, which has a claim against the property in the event that the homeowner is unable to repay the debt. Depending on the laws in their state, the lender can sell the home to recover their financial losses and make good on their mortgage debt to the borrower. The process of foreclosure varies by state, but it usually starts within a few months of the first missed payment.
A monthly mortgage payment includes four different parts: principal, interest, taxes and insurance. The part of the payment that pays off the principal builds equity in the property, allowing the homeowner to own the house outright at some point over the course of the mortgage term. The monthly payment also includes insurance to protect the lender from foreclosure should the borrower be unable to pay the debt. The cost of this insurance is passed on to the borrower in the form of PMI, or private mortgage insurance.
During the mortgage application process, it is important to find a lender that will offer you support online and in person. Many lenders have offices in their local communities, and some even provide mobile apps that help people start the mortgage application process from the convenience of their smartphone. This is especially helpful for busy homebuyers, who might not have the time to sit down and write out an entire mortgage application. PNC Bank, for example, offers mortgage applications online and in its local branches, enabling homebuyers to start their mortgage journey from the comfort of their own homes or on the go.