A mortgage loan is a sum of money you can borrow from a bank that allows you to purchase a home, land or other types of real estate. The borrower uses the loan money to buy a house. The loan is held against your house or land until you can lay it off. The benefit of a mortgage is that it can be taken by a borrower to purchase a property without paying the entire amount of money at the time of a transaction. The borrower pledges their property as collateral to avail of this loan, this is called claims or liens against the property. You can use the mortgaged property while repaying the loan and regain the ownership of the property after full payments.
Want to buy a house but need money to do so then you can apply for a mortgage loan. You can pay off your mortgage in 30 years. It is a necessity if you can’t pay the full cost of your preferred house. Individuals and real estate agents use mortgages to purchase without paying the full price. When you receive the loan, you agree to pay back the loan with interest over a period of years.
The lender has the right to its property until the mortgage is fully paid off. Should in case the borrower stops paying the mortgage the lender can foreclose on the property. Evict the people living in the home, sell off the property and use the money to cover the mortgage. Mortgage loans are also used to borrow funds for strong financial institutions for other projects using their houses as collateral. Every time you make a mortgage payment, the interest makes up a bigger part of your total payment.
You have 30 years to pay off your mortgage. Your loan will be divided into 360 monthly payments. Your monthly payments are always the same. And the loan has a fixed interest rate meaning your lender can never increase your rate.
How to Qualify for a Mortgage Loan
You will need to meet the mortgage requirements
Your credit score:
this is a three-digit numerical rating of how reliable you are as a borrower. Your credit score reflects how much you have managed different credit accounts in your financial history. A higher credit score means that you will pay your bills on time. A lower credit score might mean that you often fall behind on payments. Some lenders require a FICO score of 620 or higher to approve a conventional loan.
Your income:
for you to qualify for a mortgage loan your lender will ask for proof that you have a stable and reliable income based on a review of your recent paystubs. You must produce W-2wage statements from the past two years. they need to know that your income is consistent and you must also provide any proof of additional income such as alimony or bonuses. Lenders will also check how often you have changed jobs.
Debt-to-income ratio:
This Is the total of your monthly debt payments divided by your gross monthly income, your income before taxes is withheld. Lenders use your DTI to determine if you can manage a mortgage monthly payment and repay your loan. The lower your DTI ratio, the more inviting you are as a borrower. You need a DTI ratio of 50% or less to qualify for a mortgage loan.
Your down payments
This is the money you pay upfront to purchase a home. Not all lenders ask you to put a down payment but the more you put down the lower your mortgage payment will be. The down payment you put in depends on the type of loan you are getting.
Types of Mortgage Loan
Conventional loan
This type of loan is not backed up by the federal government. They are also conforming loans. This type of loan is a famous choice for buyers. You can get a conventional loan with a down payment of as little as 3% of the purchase price of the home. In conventional loans, sellers can contribute to closing costs.
Fixed-rate mortgage
This type provides the borrowers with an established interest rate over the life of their loan. Your monthly mortgage payments always stay the same. Fixed loans usually come in terms of 15 years or 30 years.
Jumbo mortgage
These mortgages are above a certain dollar amount. They usually require a down payment of 10% or more and often require a credit score of 700 or higher.
Buying a home doesn’t come cheap but you can take a mortgage loan to purchase your dream home. Take your time to know what a mortgage loan is before you apply for a loan.
