What is a Mortgage?
A mortgage is a loan to help you buy, build or maintain your home or other real estate. You make payments on the loan for an agreed-upon period of time until it is fully paid off. The property serves as collateral for the loan, which means if you fail to make payments the lender can take possession of your home.
Borrowers can get a mortgage through their bank, credit union or other financial institution. They must meet a number of requirements to qualify, including having a steady income source, a good credit score and a modest debt-to-income ratio. The amount of the loan is typically based on the value of the property.
Before closing on a mortgage, the borrower must complete an extensive application. A lender reviews the application, checks the borrower’s credit and performs an appraisal of the property to ensure that it is worth what is being borrowed. The process can be lengthy, as the underwriter may request additional documentation or verifications.
There are many different types of mortgages, and the specific type you choose will depend on your needs and financial situation. Mortgage rates vary, and they can change week to week or from lender to lender. You can research current mortgage rates at various banks, credit unions and other lending institutions to find the best deal for you.
When shopping for a mortgage, you should also consider the type of loan term, whether the rate is fixed or variable and how much money you will pay in fees, such as loan origination and application charges. You should also compare the cost of homeowners insurance, as your lender will require that you carry this coverage to protect its investment.
The most common type of mortgage is a 30-year fixed-rate mortgage. The mortgage is paid off in monthly installments, with each payment consisting of principal and interest. A shortened loan term can reduce your monthly payments but will increase the total cost of the loan.
Often, first-time homebuyers can receive assistance from a government or non-profit agency to help with the down payment on their new home. This may be in the form of a grant or an interest-free loan that does not have to be repaid until after the homeowner sells or refinances the property.
During the mortgage process, it is critical to stay in close contact with your lender. Lenders will want to review your financial documents regularly and may ask for additional information, such as paystubs or tax returns, as needed. During this process, it is common for underwriters to visit the property to assess its value and make sure that it is worth the purchase price being negotiated. If the property appraises below the agreed-upon price, the borrower will have to bring more cash to the table or renegotiate the deal with the seller. The lender will also require that the borrower have homeowners insurance, as the home is considered to be collateral for the loan.