For several people, owning a home is an inseparable part of the American dream. For a majority of homeowners in the United States, applying for a mortgage is just one of the steps to fulfill that dream.
If you're pondering homeownership and are confused about how to get started, you've come to the right place. We're examining all the mortgage basics, including mortgage lingo, types of loans, the process of purchasing a home, and more.
What Is A Mortgage?
Before we dive into the workings of a mortgage, let's address the basics. First, what does the term "mortgage" even mean? To put it simply, a mortgage is defined as a kind of loan used for the purpose of buying or refinancing a home. Mortgages can also be called "mortgage loans." They enable you to purchase a home without having all the money upfront.
Who Can Apply for a Mortgage?
A mortgage is taken by a majority of individuals who buy a home. If you can't afford the total cost of a home out of pocket, then a mortgage becomes necessary.
There are some occasions where having a mortgage on your home makes sense, although you have the money to pay it off. For instance, investors at times mortgage properties to make funds available for other investments.
To be eligible for the loan, certain qualification criteria have to be met. Hence, a person who is accepted for a mortgage will possibly be someone with an income that is stable and reliable, a debt-to-income ratio not exceeding 50%, and a decent credit rating (a minimum of 580 for FHA loans or 620 for conventional loans).
A Loan vs. A Mortgage?
The word "loan" can be used to refer to a financial transaction of any kind where a lump sum amount is received by one party, and they agree to repay the money. Property can be financed with this type of loan. So, although a mortgage is classified as a loan, not every loan is a mortgage.
Mortgages are also "secured loans" i.e., they have collateral attached to them. Collateral is promised by the borrower to the lender in case they discontinue making payments. With regards to a mortgage, the home becomes the collateral. If you discontinue payments on your mortgage, your home can be taken by the lender as part of a process called foreclosure.
