Mortgages are a type of loan that typically involve a property as collateral. This means that if the borrower fails to make mortgage payments, the lender has a right to foreclose on the property and sell it off in order to pay off the debt.
Mortgage lending occurs in many countries and is usually regulated by governments. This includes requirements for lenders to take security (usually in the form of a property) and to earn interest on the funds provided, or to charge additional fees.
Obtaining a mortgage is a complicated process that requires thorough credit checks and verification of income, assets, and debts. There are several types of mortgages, including fixed-rate loans, adjustable rate mortgages (ARMs), and home equity lines of credit.
First-time buyers may qualify for an affordable fixed-rate mortgage. This type of mortgage is available for borrowers with low or moderate credit scores and often allows a larger loan amount than a jumbo loan.
A mortgage is the primary source of funding for most new home purchases. These loans are available from banks, savings and loan associations, and credit unions as well as many online-only lenders.
The process begins with the application, which requires a detailed review of your financial situation and ability to repay a mortgage. Lenders ask for recent paystubs, W-2 forms, and tax returns to verify your employment history and income. Your bank and investment statements can also help lenders determine your capacity to make your mortgage payments.
After you’ve submitted your application, you’ll be contacted by a mortgage officer who will go over your credit report and verify your information. If your application is approved, you’ll be able to sign the loan documents and start shopping for your home.
Your credit score is a key indicator of your overall financial health, so you’ll want to keep it high. If your score falls below the minimum, you’ll likely be required to bring in evidence of other credit sources, such as a business or personal checking account.
In addition, you’ll need to show that you have enough money in your bank accounts to cover your monthly mortgage payments. This can include money in an emergency fund, or liquid assets such as savings and checking accounts.
It’s a good idea to shop around for your mortgage, since the rates and terms vary from lender to lender. Some lenders, such as banks, offer more competitive rates than others.
You should choose a loan term that fits your budget and helps you plan for future expenses, such as home repairs or college tuition. You’ll also need to consider if you should opt for a fixed-rate mortgage or a more flexible ARM.
A variable-rate mortgage generally offers a lower interest rate than a fixed-rate mortgage, but can end up costing you more in the long run if market rates are high. If you do choose a fixed-rate mortgage, talk to your lender about how interest rates are trending in your area and consider refinancing if you see a better deal.