What is a Mortgage?
A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you don’t repay the loan plus interest. A mortgage is a type of secured loan because the house itself serves as collateral for the debt.
Most people aren’t able to pay the entire purchase price of a home in cash, so they get a mortgage to make up the difference. A mortgage is a written contract that is recorded in the public records. Mortgages are typically long term loans, sometimes up to 30 years. Each month, you pay some of the balance of what you borrowed and a portion of the interest that is charged on the debt. Early payments are heavily weighted toward interest, but as time passes, you pay more and more toward the principal of the loan.
Buying a home is one of the biggest decisions you will ever make, and getting a mortgage to pay for it is an important step in the process. Taking the time to prepare yourself can help you avoid problems down the road, and can ensure that you are able to get the best mortgage possible for your needs.
Start by reviewing your credit reports and checking your finances to get a sense of how much you can afford to spend on a new home. You should also work out a monthly budget to determine how much you can comfortably afford to pay each month for a mortgage payment. This information will help you set a maximum purchase price for the home you want to buy and make an informed decision.
When you find a home you like and have made an offer, you will need to submit a complete mortgage application with your preferred lender. This is usually about five pages long and asks for personal financial details such as your debt, income, assets, employment history and more. You can submit a mortgage application to more than one lender, but you should only do so within a 45-day period to limit the number of hard credit inquiries on your credit report.
After you apply, your lender will review the information to see if you qualify for the mortgage. This may include looking at your credit report, assessing the loan-to-value ratio of the home you are purchasing and double-checking that the title to the property is free from liens or claims. A good rule of thumb is to get a prequalification from multiple lenders so that you can compare rates and terms before committing to one.
If your mortgage is approved, you will need to sign the documents that will be enforceable under state law. It is a good idea to have the mortgage in writing as it will clearly state your obligations and responsibilities, and will protect you against legal complications should you not comply with your obligation.