Owning a home is an essential part of the American dream for many. If you are planning to become a homeowner, getting a mortgage is an essential step in that journey. Read on to find out more about mortgages.
What Is A Mortgage?
A mortgage is a type of loan that can be used to purchase or refinance a home. It allows prospective home buyers to own a home without having to make the entire payment upfront. Mortgages are secured by the borrower, offering the home as collateral if they are unable to make their loan payments, in what is known as a foreclosure.
Who Should Get A Mortgage?
Most homeowners purchase their homes using a mortgage. While it is often used by those who can’t afford to make the full amount at once, it is also a valuable tool for investors, that allows them to use their funds for other investment opportunities. To be eligible for a loan, lenders often look at candidates who have a stable and reliable, decent credit score, and a debt-to-income ratio of less than 50%.
How Does A Mortgage Loan Work?
When you secure a mortgage, your lender gives you the amount required to purchase your home. This amount then needs to be paid back to the lender with additional interest, over a set number of years. The interest rate is primarily determined by the current market rates and the risk profile of the borrower. The amount that you can borrow is determined based on what you can afford to pay back, and the fair market value of the home.
Parties Involved In A Mortgage
A mortgage transaction involves two main parties – the lender and the borrower.
Lender: Lenders are financial institutions that loan the amount required to purchase the home and can be a bank, a credit union, or an online mortgage company. Before giving you a loan, a lender will review your profile and check if you meet their standards.
Borrower: The person seeking a loan to purchase a home is known as a borrower. It is also possible to apply for a loan with other borrowers added on as co-borrowers, letting you purchase a more expensive property.