What Is a Mortgage? (And Other Commonly Asked Questions)
You’re finally ready to buy your own home, but first you need a mortgage. At least, you think you do. But what is a mortgage, anyway? You probably have a rough idea, but you may not be sure exactly how they work to help you buy the home of your dreams. Here are the basics when it comes to mortgages.
The most important thing to understand is that a mortgage is essentially a loan. In this case, it’s a loan that helps you buy your home. A home is a large purchase and most people don’t have all the money they need to buy one up front, but they also don’t want to spend years without a home while they save up that money. A mortgage is the answer. Read on to learn the answers to other common mortgage-related questions now.
Where Do I Get a Mortgage Loan?
There are a number of places you can go to get a mortgage loan. Mortgage loans come from banks or lending institutions that specifically exist to loan people money so they can buy their homes. Naturally, this process of mortgage lending is a business, and mortgage lenders make their money by charging you interest as you pay back your loan.
This is one of the reasons why it is imperative that you compare different lenders so that you can find the lowest interest rates for the amount of money you need to buy your house.
How Much Does a Mortgage Loan Cost?
The cost of your mortgage loan will be determined by your interest rate. Each month, you will be billed for a mortgage payment that will include a portion of the principal you borrowed to pay back, as well as interest, property taxes, and any insurance you may have been required to take out on the loan.
How Do I Start?
Once you have found your lender, start by applying for your loan. If you are approved for the loan, you will have to produce a down payment, which is a portion of the loan that you pay up front. This is typically 20 percent of the full amount. If you put up less than this, you will probably have to buy Private Mortgage Insurance (PMI). In most cases his is undesirable, as it is a premium you will have to pay monthly to protect the lender, not you.
What Else Do I Need to Know About My First Mortgage?
You need to know things like the term of the loan (as in how many years of payments will you be required to make); the rate structure, if it will be a fixed rate mortgage that stays at the same rate throughout the life of the loan or an adjustable rate (ARM), that fluctuates with the market; and if there any balloon payments, much larger payments that come due at certain portions of the loan, usually at the end.
It’s important to understand all the terms of the loan because your loan is secured by the home itself, so if you default, they can take your home away. You should also know that it may be possible to get assistance finding an affordable mortgage loan through the government’s FHA, or Federal Housing Administration, plan.
If you’re ready to look for your mortgage loan and buy your first home now, start by comparing lenders at OnlineLenderSearch.com.
