Home Mortgages: Find Out The Basics
June 16, 2007
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Many people dream of owning their own home. While builders have made homes more affordable, the process of obtaining a mortgage can still be tricky. If you are new to buying a home, here are a few things you need to know about mortages.
Mortgage Loan Basics
A mortgage is a loan that a person acquires in order to purchase a house. When the loan is signed, the house becomes the collateral for the loan. This means that if you default on your loan (miss three or more loan payments) the lending institution can foreclose on your property and take your home.
A mortgage loan consists of two parts: the principal and the interest. The principal is the amount of the loan that you obtained from the bank or other lending institution. The interest is what the bank charges when they lend you the money.
Banks use a process called amortization to calculate the amount of your monthly payment that will go towards the principal and the interest. Only payments made towards the principal reduce the amount of the loan. With amortization, you are paying mostly interest at the beginning of the loan repayment.
Once calculated, the mortage payment will consist of: principal, interest, insurance, and taxes. For anyone putting down less than 20% of the total balance of a loan, an escrow account is required. This escrow account consists of monies to pay your taxes and insurance on a yearly basis. The total amount is divided equally over a twelve month period and added to the other elements of the mortgage payment.
How To Apply
You can apply online, go to a traditional lending institution like a bank, or deal with independent lenders. Most lenders offer fixed or adjustable rate mortgages. Fixed loans payments are constant for the life of the loan. Adjustable rate loans fluctuate on a set schedule, so the payment may go up or down.
No matter who you choose to go with, the same items are needed to complete a home loan application. Needed information includes: bank statements (both savings and checking accounts), tax returns for the past three years, and three months worth of paycheck stubs for each individual. The institution will pull a comprehensive credit report. Depending on your score, more information may be needed.
Learn all that you can about mortgages and qualifying for one. This will make you more knowledgeable when speaking to lenders. The more you understand, the easier the process may be.
Grab your Guide to Family Budgeting Step-by-step guide to help you establish a workable budget.
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[...] Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other [...]