If you are hoping to be a new homeowner, you may feel like you are in uncharted territory. Even for those who have been through the mortgage process before, each property and situation is different and may require different things of the parties involved. Speaking of parties involved, there are traditionally two parties involved in the process, the person looking to get a mortgage: a borrower, and the entity lending the money: a lender. Most people do not pay cash in full for their house, so most will need to get approved on a mortgage in order to own the home of their dreams.
Much of the lingo on mortgage applications and documents may initially seem confusing. However, it’s good to get a handle on some of the terms your will see so that you understand the contract you are entering into. If the homeowner defaults — in other words fails to meet their financial commitment on the loan — the lender may be entitled to foreclose on the real estate and have it sold to reduce the debt. In order to avoid foreclosure and losing your property, it’s good to know how mortgages generally work and what will be expected of the borrower and what a borrower can expect from their lender.
Residential mortgage loans usually bear interest at a fixed annual percentage rate over a period of 15 or 30 years. The interest rate is determined by the prevailing market conditions at the time the loan is made among other factors, like personal credit. This is the portion of your payment that will go to the lender to compensate them for lending the money and taking a risk on the borrower. A down payment is required in order to solidify a person’s commitment to taking out the loan.
While the details of a person’s loan — things like down payment amounts, interest rates, terms and amount borrowed — will vary from person to person, generally the same things are required of all borrowers. This is that borrowers make their mortgage payment on time and pay in full. Understanding how much home you can afford can be tough to calculate as their are several costs built into a final number. Things like the actual mortgage payment, interest, PMI, taxes and HOA fees all can have an impact on the final monthly or annual number associated with home ownership.
Source: FindLaw, “Mortgage Basics,” accessed on Dec. 4, 2017