A mortgage is a type of loan that lets you purchase a house or borrow money against the value of a home you already own. You agree to repay the loan (including any interest) over a specific number of years, known as the mortgage term. During that time, the lender has the right to take your property if you dont make payments.
Mortgages are installment loans, which means that you pay them back in monthly installments over a certain period of time. They typically require a down payment, and the terms of your mortgage can vary depending on the lender.
Getting the right mortgage for you is important because it can help you save money in the long run. Youll also want to keep your debt-to-income ratio low, since that can improve your chances of qualifying for a better rate.
Before applying for a mortgage, make sure you have all of the necessary documents ready. These include proof of income, financial statements, tax returns and any other information lenders will need to evaluate your qualifications for the loan. The faster you can provide these documents, the sooner you can earn a pre-approval, which will expedite the home-buying process.
Applying for a mortgage is a lengthy process that includes many steps. Youll need to gather a variety of documents from your employer, bank and other sources that lenders will use to check your income and credit history. Once youve received your pre-approval, you can shop for a mortgage and compare offers from different lenders.
A mortgage can have many different characteristics, but the most common ones include:
Interest – Youll pay interest on your loan until you repay it in full. This is called amortization, and it can happen over a period of 10, 20 or 30 years.
Term – Your mortgage may have a term of up to 30 years, with a maximum number of repayments that is usually specified in the contract.
If you choose a fixed-rate mortgage, the interest will stay the same for the entire life of the loan. If you opt for an adjustable-rate mortgage, the interest rate can change at regular intervals based on market conditions.
You can get a mortgage through a bank, a private lender or a government-sponsored enterprise such as a Federal Housing Administration (FHA) loan or the Veterans Administration (VA). Both types of loans have their own eligibility requirements and features that you should familiarize yourself with.
Dont forget to factor in the cost of taxes and insurance, which are typically included in your monthly mortgage payment. These costs will vary widely depending on where you live and the value of your home, but they should be no more than 25% of your monthly take-home pay.
Using our mortgage calculator to estimate your monthly payment is an easy way to get a ballpark figure before submitting an application for a loan. It takes into account your loan term, down payment and mortgage interest rate, as well as the total of property taxes, homeowners insurance and HOA fees.
