How to Get a Mortgage
Mortgages allow homeowners to purchase a home by paying only a fraction of the purchase price upfront, and borrowing the rest. The property serves as collateral, and the borrower is responsible for repaying the principal plus interest over an agreed upon period known as the loan term. Many types of real estate may be financed with mortgages, including commercial properties and residences.
A mortgage can be obtained from a variety of sources, including credit unions, banks, mortgage-specific lenders, online-only lenders and even mortgage brokers. When shopping for a mortgage, it is important to compare rates offered by these different providers to ensure the best possible deal.
To obtain a mortgage, a prospective borrower must meet minimum financial requirements, including an acceptable debt-to-income ratio and credit score. The lender then reviews the borrower’s financial history to determine whether he or she will be able to afford a monthly mortgage payment that includes principal, interest, taxes and insurance. The lender will also review the title of the property to make sure that it is free from liens and claims by creditors or other parties, such as a homeowner’s association.
The mortgage process can be lengthy, but it is essential for homebuyers who cannot afford to pay the full price of a home out-of-pocket. Borrowers must be prepared to provide a substantial down payment on the home, and a letter of explanation to explain any financial issues that might affect their ability to make monthly mortgage payments.
As borrowers make their monthly mortgage payments, they build equity in the property over time, and ultimately own it outright. In some cases, mortgage payments may also include the cost of property insurance and hazard insurance. Mortgages can be structured to exclude these costs, allowing borrowers to save money in the long run.
A borrower can choose from a wide range of mortgage terms, including 30- and 15-year mortgages. However, stretching a mortgage over more years increases the total amount of interest paid by the borrower over the life of the loan. In some cases, a lender will sell the mortgage to another party who is interested in receiving the stream of regular payments from the borrower in return for a percentage of the total loan amount, known as a securitization.
Before a home buyer can get a mortgage, they must submit a variety of documents, including bank statements and pay stubs. In addition, the potential borrower must have a good credit report and verify that their income is steady enough to support monthly mortgage payments. To make the process easier for borrowers, it is a good idea to prepare ahead of time by making sure that their credit score is as high as possible and checking their credit report for errors that could negatively impact their mortgage application.