The word “mortgage” is a popular term used by many and often assumed that everyone knows what a mortgage is and how they work. Unless you have gone through the mortgage process or have a career in real estate, sometimes the basics of what a mortgage is and how they work can be difficult to understand.
Here is the essential information you need to know about mortgage loans.
What Is a Mortgage Loan?
Mortgages are the primary way people purchase property in the United States, and they make homebuying possible, as most do not have the cash to pay for a home upfront. A mortgage loan is an agreement between the borrower and mortgage lender to buy a home or other property, often with a down payment, and gradually repay the loan with interest over time, anywhere from 15 to 30 years.
Here are a few key terms to better understand mortgages:
- Borrower: the person receiving the mortgage loan.
- Lender: the person funding you the money for your mortgage loan.
- Down payment: a percentage of the buyer’s purchase price out of pocket.
- Loan term: the amount of time you have to repay a loan, typically anywhere from 15 to 30 years.
- Interest rate: the amount a mortgage lender charges the borrower and is a percentage of the principal- the loan amount.
- Loan amount: the amount of money still owed on the mortgage loan.
How Do You Get a Mortgage?
If you are interested in purchasing a home with a mortgage loan, you can apply for a mortgage through a mortgage loan originator.
You’ll eventually choose whether to use a bank or a broker for your mortgage. The price between the two choices will be about the same, but you’ll typically receive higher quality service from a broker because of the ability to shop numerous lenders for you, verses being limited to just one lender in the case of a bank.
To learn more about the difference between banks and mortgage brokers, see our article titled, “5 Factors to Consider in Deciding Whether to Use a Bank or Broker for Your Mortgage.”
Once you have applied for a mortgage, the lender will take a very in-depth look at your finances, using the documentation you submitted. Everything from bank statements, pay stubs, and tax returns could be examined, in addition to your credit report. Different lenders have different requirements for approving applicants, so using a mortgage broker to match you to a lender that best fits your specific financial circumstances is important.
What Happens Once You Are Approved for a Mortgage?
If your mortgage is approved, the lending institution will require an appraisal of the property you are purchasing, to ensure that the value of the asset meets the requirements of the mortgage for which you have applied.
Once an appraisal has been completed, the lending institution will draw up a mortgage agreement. Then at closing, you will sign the mortgage agreement and pay the closing costs.
What Happens if You Don’t Pay Your Mortgage?
After you’ve signed the mortgage agreement, you are obligated to make regular payments according to the terms of the contract.
If you are unable to pay your mortgage, the lending institution will eventually foreclose on the mortgage, which is a legal process whereby a lender attempts to recover the balance of the loan, often resulting in forcing the sale of the property.
Marimark Mortgage is a Mortgage broker in Tampa serving all of Florida, Virginia, and Pennsylvania. Please contact us with your mortgage questions, and we’ll be happy to help you navigate the mortgage process.