Prospective homeowners who are in the process of purchasing their first residence can find it to be overwhelming. With such a wide range of meetings to sit through and paperwork to fill out, its often difficult to set aside time to learn more about what a mortgage loan is and the help that they can provide.
A mortgage loan is also commonly referred to as a mortgage and refers to a loan that is taken out with the usage of property as collateral. The buyer of the home is provided with the funds that they need to facilitate a purchase, while the lender receives a promise from the homebuyer that the funds will be repaid within a certain predetermined time period.
This promise is made in a manner that is legally binding and if the purchaser of the home is to default on the agreement for any reason, there are severe consequences. The lender of the money has a legal claim to the home should you fail to pay back your mortgage loan in a timely fashion and the home is usually foreclosed on in these instances.
While the borrower of the loan technically owns the house and resides in it, the lender is the one who truly owns the home, until it has been fully paid off.
The mortgage loan is then paid back on a monthly basis. These payments will consist of the principle (the actual amount that the house costs) and the interest (the financial institution’s fee for facilitating the transaction). By paying the principle, you are reducing the overall balance of the loan.
Monthly mortgage payments also include taxes and insurance. The taxes that are associated with these payments will depend on the state in which you reside and eligible for an annual reassessment.
The process of applying for these loans can be stressful, as there is a wealth of information that the prospective homeowner needs to provide to prove their worthiness as an applicant. The first step is obtaining a credit report and checking for errors.
From there, a property appraisal is performed and the loan applicant provides their W2, proof of employment, bank information, pay stubs, tax returns, debt information and divorce papers, if applicable. If the applicant makes their way through this part of the process and deemed eligible, the closing process comes next.
Numerous documents are signed during the closing procedures, including a signed mortgage note and a Truth-In-Lending Statement. If any last minute changes need to be made, they are conducted before the property is officially transferred to the buyer.
While the mortgage loan process can come across as daunting to the first time home buyer (and even those with prior experience in these matters), it is simple and easy to follow. Contact your local financial institution if you have further questions.