What You Need to Know About Mortgages
Mortgages allow homebuyers to bypass the huge one-time transaction of paying a home’s entire purchase price upfront. Instead, homebuyers take out a loan to cover the cost of the property and promise to repay that loan with interest over time. These loans are secured by a lien on the borrower’s property, which can be seized in the event of default.
Most lenders require borrowers to carry homeowner’s insurance, which covers their property against loss or damage. The premiums are added to the monthly mortgage payment and are deductible for tax purposes.
When a homeowner applies for a mortgage, the lender will review their financial situation and credit history to determine if they qualify to borrow money. Lenders will also request the borrower to provide documents such as bank and investment statements, tax returns, employment verification, and more. In addition, they may require a down payment.
Once a borrower has qualified to take out a mortgage, the lender will issue what’s called a Loan Estimate within three days of receiving their application. The Loan Estimate will provide important details about the loan such as the estimated principal, interest, and closing costs.
A repayment plan is an arrangement with your lender or servicer to make up missed payments on your mortgage loan. A repayment plan can help you avoid foreclosure or other loss mitigation options, such as short selling your home or bankruptcy.
Mortgage rates can vary from week to week and from lender to lender, so it’s essential for borrowers to comparison shop for the best rate possible. This can be done online or over the phone and may involve a credit pull.
While banks, savings and loan associations, and credit unions were the main sources of mortgages at one time, nonbank lenders are growing in popularity. These include Better, loanDepot, Rocket Mortgage, SoFi, and others. Many of these lenders offer different types of mortgages, including interest-only loans, adjustable-rate mortgages, and balloon payment mortgages.
When you pay off your mortgage, the lender will send you a letter stating that you have paid the mortgage in full. This document is referred to as the mortgage satisfaction paperwork. You must receive this document before you can sell or refinance your home.
If you fail to repay your mortgage, the lender can file a lawsuit against you and can foreclose on your property. In the event of a foreclosure, the lender will evict you and sell your home to recover their financial loss.
A refinanced mortgage is when you change your loan terms such as the interest rate or the term of the loan. Refinanced mortgages can make your payments more affordable or help you pay off your loan faster. Before you refinance, weigh your options and consider how long you want to stay in your home and your financial goals.