Mortgages and Loans
Mortgage Terms and Loan Types
What is a Mortgage?
The term “mortgage” can be overwhelming and confusing for many people. The truth is mortgages and loans can be difficult to understand if you are not a professional. Do not let this intimidate you from applying for a mortgage and buying your dream home. Let the team of mortgage professionals at HomeHunt break down the basics and help you understand the mortgage industry a little better.
Let’s start with defining what the term “mortgage” means. Simply, it is a type of loan you can use to buy or refinance a home. Mortgages are also known as mortgage loans and are used to buy a home without paying the entire cost upfront. Most people who are looking to buy a house will need to apply for a mortgage. To receive a loan, you must meet certain criteria including a decent credit score and stable income.
Mortgages vs. Loans
A loan is a general term that is used to describe any financial transaction where a lump sum of money is given to a person who agrees to pay it back, almost always with interest. A mortgage is a type of loan that is primarily used to finance a property. Think of a mortgage as a sub-section under the loan heading.
How Do Mortgages Work?
Once you are approved for a mortgage, your lender will give you a set amount of money to purchase your home. You will agree to pay back this loan with interest over a period of years. The home is not fully yours until your mortgage is paid off. If you stop making payments on a mortgage, your lender can take possession of your home. This process is known as foreclosure.
Let’s talk about interest rates. This is where mortgages can become a bit complicated. Interest rates are determined by two things:
Unfortunately, you cannot control the current market, but you can control how a lender views you as a borrower. The higher your credit score, the more responsible you will look to a lender. This will show your lender that you are less of a risk, giving you a lower interest rate.
The amount of money you can borrow depends on what you can afford and the fair market value of the home. This is determined through an appraisal and is important because the lender cannot lend more than the value of the home.
Types of Loans
There are many different types of loans you can get when buying a house. Each one has different requirements and benefits.
Who is Involved in Mortgages?
There are two individual parties that are involved in a mortgage transaction: a lender, and a borrower. A lender is a financial institution that loans you the money to buy your home. A lender could be a bank or credit union or an online mortgage company. A borrower is you or the person seeking the loan to buy a home. You can apply to borrow a loan yourself or as a co-borrower. The more borrowers on the loan can help you buy a more expensive home.
Helpful Mortgage Terms
Mortgages can be confusing, but do not let that stop you from buying the home of your dreams. The mortgage team at HomeHunt can walk you through this process and help you receive the best possible loan for your situation. Contact a team member today.
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