December 7th, 2019 10:26 AM by Jackie A. Graves, President
of homeowners in the U.S. will use a mortgage loan to finance the purchase of
their homes. The home is typically the largest asset a family owns, and the
corresponding mortgage loan is usually the largest debt.
Financially, understanding how the mortgage loan process works is
absolutely critical. This overview is your starting point to learning the
essential information on mortgage loans.
What are mortgage loans?
Mortgage loans are the primary tool homebuyers use to pay for
their home. Mortgage loans can also be used to buy some investment properties
and vacation homes, although they're most commonly known for their use in
financing a primary residence.
Homebuyers will pay a down payment on the home, and the remainder
of the financing will come from the mortgage. As a rule of thumb, a mortgage
will pay for 80% of the price of the home, although there are specialized
programs that can allow a mortgage to pay for a higher percentage of the
purchase. Some programs will even provide for 100% financing. Mortgages for
investment properties and second homes will generally require a larger down
After the home is purchased, the homeowner makes monthly payments
of both principal and interest to pay off the loan over time. Most mortgage loans
in the U.S. are repaid over a 30-year period.
How do you get a mortgage
To get a mortgage loan, a prospective borrower must apply for a mortgage through a bank,
a credit union, or another lender. Mortgage brokers can also be used. These
individuals or companies will present your loan request to a variety of lenders
and present you with the best deal available. Sometimes working with a broker
can be very helpful, and other times the broker may charge extra fees, making
the loan unnecessarily expensive.
When applying for the loan, the lender will want to fully examine
the applicant's financial situation. That can be an unpleasant process for many
individuals. The lender will take into consideration the applicant's credit
score, income, debts, net worth, and down payment.
The exact requirements for each of those considerations will vary
from lender to lender.
Once a borrower is approved for the loan, the lender will order an
appraisal of the property to ensure that the value of the house is accurate.
Typically, the borrower will be required to pay for the appraisal, even though
the bank orders it.
Borrowers should expect to pay an origination fee, miscellaneous
taxes and filing fees, any mortgage points, and a handful of other fees that
will vary from lender to lender. These payments are required to be paid
upfront, while the interest on the loan will be paid over time with each
payment. The exact details of all costs will be presented to the borrower
during the application process, as required by law.
Important mortgage loan
To help prepare you for the bank jargon used in the mortgage loan
process, here are some helpful definitions you'll need to know.
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