Understanding the Mortgage Process
Mortgage is a type of loan consumers use to buy real estate, and the property itself serves as collateral. It is a long-term financial obligation, and the borrower pays back principal plus interest over a period of years, called a term. Purchasing a home is one of the biggest financial decisions most people will ever make, and it’s important to take time to understand the mortgage process.
A lender typically conducts a credit check before lending money for a mortgage. The borrower may also have to submit bank and investment statements, tax returns, pay stubs and other documentation. The lender will determine whether the borrower has sufficient income to afford a monthly payment and will take into account any debt payments a person already makes, such as car loans or student loans.
In Anglo-American property law, a mortgage occurs when an owner of a fee simple interest in real estate pledges that interest as security for a debt. The borrower must repay the mortgage in a certain number of years, or else relinquish ownership of the property to the lender. The lender can then reclaim the property through a legal process called foreclosure.
Most mortgages are fully amortizing, which means the regular payments each month pay down both the principal and interest in small amounts. Usually, the payments pay more interest than principal for the first few years of the loan. After a few years, the amount paid each month is equal to the principal. Mortgage payments often include property taxes and homeowners insurance.
There are several types of mortgages, including conforming conventional loans, jumbo loans and Federal Housing Administration (FHA) and Veterans Affairs (VA) loans. Borrowers can shop for mortgage lenders and obtain pre-approval before finding a home, which can help them get an edge in a competitive market. They can then compare mortgage offers from various lenders based on the loan type, term and interest rate, as well as fees associated with the mortgage.
A mortgage is the most common way for people to purchase homes, and it can seem like a daunting financial commitment at times. But borrowers who carefully consider the mortgage process, work hard to qualify for a mortgage and are aware of how the loan works will be able to successfully manage their mortgage. This will help them become homeowners who can enjoy the benefits of owning their own property and provide a better future for themselves and their families.