For some, having and owning a home is an American dream. In America, homeowners consider mortgages as the first step to get there. Now, if you are also one of these dreamers, then knowing only the surface information about mortgages won’t get you far. Given that, I will be sharing with you some of the important details about mortgages that you need to consider. In this way, you can have an amazing journey and be closer to your dream success. Let’s start by defining the term mortgage.
What is a Mortgage?
A mortgage simply refers to the type of loan used in buying or refinancing a home. It is also referred to as the mortgage loan. Another thing, it is considered a way to buy a home without upfront cash. Thus, it is the loan that can help in buying a home easily and effectively.
Who gets a Mortgage?
Moving on, the people who can get a mortgage are those who want to buy or refinance a home. Besides, a mortgage loan can come as a necessity once paying the full property price cannot be done. Still, there are cases wherein having a mortgage makes sense even though paying the full property price is possible. This is applicable when investors mortgage properties to make more funds for other investments.
In terms of qualifying for the loan, there are certain eligibility requirements that must be met. In my case, I have submitted necessary details such as my personal attachments, experiences, and job. So, those who can have a mortgage must have a reliable and stable source of income, a decent credit score, and a debt-to—income ratio of 50% or below.
Difference between a Mortgage and a Loan
This may be simple, yet a lot of people still make mistakes when comparing a mortgage to a loan.
A mortgage refers to the type of loan wherein a property is being refinanced. It is a type of loan yet not all loans are considered as mortgages. That is because mortgages are secured loans. With this, I can provide collaterals to the lender to stop making payments. Also, in mortgages, home is referred to as the collateral. If I discontinue paying for the mortgage, the lender will own the home through the foreclosure process.
On the other hand, a loan refers to the financial transaction wherein a borrower receives an amount and promises to pay it back.
How does it work?
Mortgage is simple. Once I have one, the lender will provide the money for me to finally buy a home. Then, I’ll agree to pay it back with an interest over the agreed period. So, I am not completely considered as the owner of the home until the mortgage has been paid off. Another thing, the interest rate is being determined by the level of risk taken by the lender and the current market rates.
Involved Parties in a Mortgage
In every transaction of mortgages, there are always two parties involved which are the lender and the borrower. So, let us define them both.
In mortgages, lenders refer to the financial institutions such as banks and credit unions that help and lend money to buy a home. Aside from that, there are already online mortgage companies such as the Quicken Loans that promote efficiency and fast mortgage transactions in today’s era.
When applying for a mortgage, the lender reviews the information of the borrower to ensure that the standards are met. Some of the standards are the job, personal information, past transactions involving finance and properties, etc. Also, every lender has their own set of standards that must be met by the borrowers. During the review process, lenders need to be careful when choosing and assessing their applicants. In this way, financial lapses or concerns can be avoided in the future.
On the other hand, a borrower refers to the individual who seeks a loan to buy a home and anyone can be a borrower. However, there are also cases wherein co-borrowers are possible yet it depends on the type of mortgage and the lender itself. Being a borrower means that you agree to the standards and conditions set by the lender, especially when it comes to paying the loan.
So, with this provided information about mortgages, I can see that you are finally ready to venture out. Without wasting more time, let us discover more things and be indulged in the realm of mortgages.