Explain Mortgage –
A mortgage is a type of loan in which collateral to purchase/build a home, land, or other types of real estate. There is an agreement between the lender and the borrower based on which the borrower has to pay to the lender monthly or as per agreed terms in a series of regular payments divided into principal and interest. The property is then served as collateral in a mortgage to secure the loan. Borrowers are required to apply for a mortgage through their preferred lender. They also have to meet other criteria, like minimum credit scores and down payments.
Mortgage applications usually undergo a rigorous underwriting process. Also, the loan varies depending on the borrower’s needs, such as conventional and fixed-rate loans. The interest rates will also vary depending on the applicant’s qualifications and product type. The interest rate will also depend on the loan term and the applicant’s credit score.
Individuals and companies can use mortgages to buy property without paying the entire price upfront. Traditional mortgages are amortizing. It means that the regular payment would stay the same. Different proportions of principal and interest have to pay over the loan duration with each payment. Most mortgage loan terms are for 30 or 15 years. Mortgages are liens against the property. If the borrower fails to pay the mortgage, the lender can foreclose on the property. The lenders usually ask for evidence that the borrower can repay the loan.
It may include investment statements, bank statements, tax returns, and proof of current job. The lender post same will run a credit check on the applicant. If the application is approved, the lender will offer the borrower a loan up to a certain amount and at a certain interest rate. Home buyers can apply for a mortgage if they have chosen a property to buy or are still looking for one. This process is called pre-approval. Individuals pre-approved for mortgages are preferred by sellers as they know buyers will have the money to back up their offer.
Featured Image Credit: Home First Finance Company
