What is a Mortgage?
A mortgage is a type of loan that lets you borrow money to buy or refinance a home. It is also a way to pay off your debts and improve your home.
A Mortgage is a loan that you use to purchase a property and agree to repay it over a period of time, typically in small, fixed monthly payments. The lender uses the property as collateral, which means that if you fail to repay your mortgage, they can repossess your home and sell it.
The lender will review your financial information – including your credit score, income, assets and debts – to determine whether you can afford to make the monthly mortgage payments. If they believe you’ll be able to, they will offer you a mortgage.
You can get a mortgage from banks, credit unions, savings and loans associations or online lenders such as Better, loanDepot and Rocket Mortgage. Many of these lenders offer low rates and flexible lending standards.
Mortgages can be either “conventional” or “conforming.” A conventional loan is one that is not backed or guaranteed by the government, while a conforming mortgage must meet a set of guidelines put in place by Fannie Mae and Freddie Mac.
There are a lot of different types of mortgages available, so be sure to shop around before you decide on the right option for you. These include adjustable-rate mortgages (ARMs), fixed-rate mortgages, and reverse mortgages.
When you buy a home, you’ll need to make a down payment to cover the difference between the cost of the home and your loan amount. This down payment is made up of a combination of your own funds and the lender’s.
The down payment is typically a percentage of the home’s purchase price. The more you can put down, the lower your interest rate will be and the sooner your mortgage will be paid off.
A down payment is the most important factor in deciding how much you can afford to spend on a home. Most experts recommend saving up for a down payment of at least 20 percent of the home’s total value, but this can vary depending on your situation and goals.
Before you apply for a mortgage, be prepared to explain any problems on your credit report. Lenders often require letters of explanation, or LOEs, to account for late payments, collections and major derogatory credit issues like bankruptcies.
You may also be asked to find a co-signer for your mortgage, which is another form of vouching for your creditworthiness. This co-signer can’t charge any fees or interest, but their signature demonstrates that they are committed to paying your mortgage in the event of a default.
There are hundreds of lenders offering mortgages, so you should be able to find one that offers the best rate and terms for your needs. It’s best to shop around and compare interest rates and points, which are upfront costs that enable you to save on interest over the life of your mortgage.