It may seem like a daunting process but securing a mortgage isn’t a difficult task if you know where to start. As you enter the world of homeownership, there are many questions that will be answered by your lender and real estate agent. However, there are at least some key items every first-time home buyer should understand before they begin their journey.
Mortgage: Meaning
When you take out a mortgage to buy or refinance a house, you get to own the property and live in the home in exchange for making monthly payments. Sometimes, the lender will take back the house if you don’t meet your end of the deal.
Who Can Get a Mortgage
Most people make a home purchase using a mortgage. If you can’t pay the full cost of the home in cash, a mortgage is a necessity. Sometimes, it even makes sense to have a mortgage on your home even though you have enough money to pay it off. For example, some people use mortgages to free up cash flow for other investments; they might also invest in stocks, bonds, or mutual funds instead of using their savings to purchase a home.
Loan vs. Mortgage
A loan is a kind of financial transaction where money is borrowed from one party to be repaid with interest by another. A mortgage is a type of loan; it’s used to finance a house or other property. Unlike other loans, mortgages are typically repaid over the course of several years.
When you apply for a mortgage, you borrow money using your home as collateral. If you stop making payments on your mortgage, your lender can start the foreclosure process, taking away your home.
How a Mortgage Works
A mortgage is a loan you take out to buy a home. It is usually availed by people who do not have enough cash to buy the home outright. Usually, borrowers will need to repay their lender every month for the duration of the loan term.
Types of Mortgages
You might be able to get a government-backed mortgage, which is offered by the FHA and VA. Conforming loans are the most common and have the best financing terms. A jumbo mortgage is any loan that is too large to be considered a conforming loan. Non-prime mortgages are made available to creditworthy borrowers with low credit scores and/or blemished credit histories.
