In simplest of terms, mortgage refers to a loan availed by putting up a real estate property as security. This is one of the most common means of acquiring required finances for home purchase for a lot of people. But considering the numerous options for mortgages available in today’s scenario, and the fact that this is probably one of the biggest debt taken on by most people, it can get pretty overwhelming. And trouble in understanding financial jargon just adds on to the heap of various other problems. But it reality, the whole process of getting a mortgage is not that difficult. Once some basic concepts are clear, almost anyone can easily navigate through it all and convert their dream home into reality.
Acquiring real estate for personal or commercial usage is the primary goal of a mortgage loan in most cases. It’s a way for buyer to not pay the whole value of the property upfront.
Some of the important terms associated with mortgage are:
Collateral: The property purchased is kept as security in the whole procedure, and is also called collateral. If the borrower fails to repay the loan including interest and other costs, the lender has a right to sell the property to cover debt.
Down Payment: The amount of money payed upfront for property purchase. Percentage of required down payment varies from case to case, ranging from 0% to as high as more than 20%.
Mortgage Rate: It simply refers to the rate of interest charged by the mortgage lender. Although borrower’s credit score may play a major role in determining rate, at the end of the day it’s decided by the lender. Rates may be fixed or variable.
PMI: Private mortgage insurance is required when down payment is less than 20%, and it basically protects the lender in case the borrower defaults in mortgage payment.
Taxes: Apart from principal, interest, and insurance, monthly mortgage payments usually also include taxes.
The process of acquiring a mortgage loan is over in just 6 simple steps.
1. Determine the amount of loan you can afford
2. Choose the best loan option for your needs
3. Apply for the loan
4. Get your property appraised
5. Underwriting, which basically means an expert determining if the loan should be approved or not and suggesting required changes.
6. Closing of the loan
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