What Are Mortgage Loans: Whenever you are in a process of buying any property or a house, you require a mortgage which is a kind of loan particularly used for financing a property. In simple words, it is an agreement between a lender (usually a bank or credit union) and a borrower who wants to purchase a property. A Mortgage can be used by an individual who is buying a property or else by the current property owner.
A Mortgage is not that easy to understand, sometimes it can be complicated. Therefore, if you are a beginner and don’t know about mortgage yet, then there are certain things that you must be aware of before you go through the process of obtaining a mortgage loan. Therefore, with the help of this article, we are going to provide you with some basic information regarding mortgage loans that a beginner must know.
About Mortgage Loans
A Mortage Loan Provided by a Mortgage Lender or Bank that Enables an Individuals to Purchase the Home or Property. The Loan Must be Paid Back over time. There are two types of Mortgages which are Fixed Rate and Adjustable Rate Mortgages. The Mortgage Loan is the Loan that the Borrower Uses to Purchase or Maintain a Home or Other Form or Real Estate and Agrees to Payback Over time, typically in a Series of Regular Payments. Businesses and Individuals use Mortgages to Buy Real Estate without Paying the Entire Purchase Price Upfront. Over the specified Number of Years, the Borrowers Repays the Loan including Interest until they own the Property Free and Clear.
Different Types of Mortgage
When you are applying for a Mortgage Loan, one must take note that there are a number of mortgage types which you should select accordingly based on your financial need. Here we have explained some most common Mortgage Loans.
- Fixed-rate mortgage: It is one of the very common home loan options that most of borrowers look for. From the name itself you can guess the nature of this loan i.e., the rate of the loan is going to be the same throughout the lifespan of the loan. Most of the borrowers usually go with the 30-year fixed loan but there are also other options related to this such as 10, 15 and 25 years fixed loan. So, you can choose accordingly.
- FHA Loan: The FHA loan is particularly helpful for those buyers who don’t have enough funds to pay the traditional 20 per cent down payment. It helps you to get a home loan for even a credit score that is less than perfect. With the help of an FHA loan, the homebuyers can put down as little as 3.5 per cent at closing.
- VA Loan: If you are veterans, soldiers, National Guard members, active-duty recruits, then the VA loan is specifically reserved for you. One must take note that in some of the cases, the surviving spouses may also enjoy the benefit and get this loan. There are many benefits linked to this loan like you don’t need a perfect credit score to buy this loan, you don’t have to pay down payments for that, and so on.
- Adjustable-Rate Mortgage (ARM): This type of mortgage offers a lower, fixed interest rate on the borrower’s home loan. However, this relaxation is only applicable for the first 5, 7, or 10 years of your loan after which your monthly payment as well as the rate changes every year on the basis of ongoing interest rates.
Can You Get a Mortgage with less credit score?
Well, there are some types of mortgage loans that can be provided to a borrower even if their credit score is less than perfect. However, it doesn’t apply for every Mortgage Loan Type; some requires perfect or more than perfect credit scores. There are also some mortgages where you can get the loan on a low credit score but instead, your interest rate will be high. So, you should not rush in, take your time and select accordingly.
Average Time to Close On a House
In the United States, the minimum amount of time for a homebuyer to close on a house in 47 days, as of Feb 2019. However, one must take note that there are factors that may affect this average time limit and those are – the type of loan you have selected, your current financial condition, length of your contract, and so on. All these factors contribute to increasing or decreasing the time frame.
Mortgage Payment: How It is Determined?
Based on your current financial situation, the Mortgage Payment is determined. To be specific, there are 3-4 parts of your mortgage payment which we have described below:
- Principal: It is basically the amount a borrower has indebted from the lender, and it keeps on reducing overtime as soon as you make the payments on a monthly basis for repaying the loan amount that you owe.
- Interest: A borrower has to offer interest to the lender in exchange for lending them money. However, the amount may change based on the type of loan that you have indebted. The interest rate can be fixed (Fixed-rate mortgage) or it can change after some time (Adjustable Rate Mortgage). Other than the type of mortgage, the interest also depends on various other factors such as the credit score and the income of the borrower.
- Taxes: On the basis of the evaluated value of your home, property taxes are paid to the local governments. It is not a fixed amount everywhere because just like other factors, property taxes also depend on the area where you are currently living. Based on that, the Property taxes rate can be higher or lower in some other areas than yours.
- Insurance: Homeowners insurance helps in protecting you and your home from any unfortunate happing that you can’t control such as fire, flood, theft, etc. So anything like this happens in future, your Homeowners insurance is going to help you get back on your feet.
Where to Get a Mortgage Loan?
Mortgage Loans are easily accessible and they can be obtained through banks, credit unions, as well as from some government units such as the VA and USDA. On the other hand, lenders differ in their qualifications, along with their rates as well as terms & conditions. However, if you are looking for several Mortgage Companies in one platform so that you can compare and select the perfect one that suits you, then Credible is the best option for you.
This was the basic information or guide about mortgage loans that a beginner should be aware of. We hope, our information will enlighten you to learn more about Mortgage. However, if you have any other question regarding mortgage loans, you can ask us in our comment section. Also, you can ask any experienced real estate agent about mortgage, they will also guide you in a good direction.