25/07/2024 15:14

What Is a Mortgage?

A mortgage is a loan you get to buy a home. You agree to pay back the money you borrow plus interest, usually over 30 years. This gives the lender the right to repossess your property if you don’t make your payments.

The amount you borrow depends on your income and the purchase price of the home. You can apply as the sole borrower or with a co-borrower. Adding a co-borrower increases the amount you can qualify to borrow, but the co-borrower has no ownership rights in the home. However, the co-borrower shares responsibility for repaying the mortgage if you can’t make your payments.

Before applying for a mortgage, you should prepare by cleaning up your credit and checking your credit report to ensure that there are no inaccuracies. The lender will check both your credit score and your credit report to determine your riskiness as a borrower, which helps them decide how much to lend you. Having a high credit score means you’re seen as less of a risk and you could be offered a lower interest rate.

Mortgage rates depend on many factors, including the U.S. economy, international events and Wall Street activity. The Federal Reserve, the country’s central bank, also influences mortgage rates by raising or lowering short-term interest rates to encourage growth and control inflation.

When shopping for a mortgage, you should compare rates and terms from several lenders to find the best one for you. A mortgage professional can help you calculate how much your monthly payment will be and how long it will take to pay off your loan. They can also help you weigh the pros and cons of different types of mortgages.

There are two main types of mortgages: conforming and non-conforming. Conforming loans meet the standards set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that keep our mortgage markets liquid by buying up the mortgages lenders originate. Non-conforming mortgages are typically jumbo mortgages, government-backed loans or other specialty loans.

If you’re considering refinancing your mortgage, be sure to shop around for the best rates and terms. Lenders often use “sample rates” that are based on assumptions about the borrower, such as their credit score, location and down payment amount. Sample rates can also include discounts, or “points,” that the borrower pays to reduce their mortgage’s interest rate.

You should always review your Loan Estimate carefully before you close on your mortgage, to make sure you understand all the fees involved. You may be able to negotiate some of the costs, especially those listed under “origination charges.” You should also consider your appetite for risk and future plans when deciding whether or not to refinance. A cash-out refinance, for example, is only a good idea if you plan to sell your home shortly after closing and have enough equity in your home to cover the cost of the new mortgage and the transaction’s closing costs. A refinance can also be a bad idea if you move or change jobs in the near future, as you might not see a return on your investment.