Home Mortgage

With mortgage rates at all-time lows, and with the recent mortgage crisis slowly receding into half-remembered history, many are considering entering into the housing market or re-financing their existing homes to take advantage of the great interest rates. But mortgages can be complicated and daunting affairs. How can a buyer be sure they are getting the mortgage that suits them best? What are the risks involved in acquiring a mortgage. The following will help to simplify the mortgage process, and offer some advice on preparing for your meeting with a mortgage broker, bank or credit union.

What is a home mortgage loan?

A home mortgage loan, commonly referred to simply as a “mortgage”, is a loan taken out on the purchase of a home. Since the vast majority of people do not have the necessary cash on hand to purchase a home outright, banks offer loans that are secured with the property that is being purchased.

The property offers security to the bank in the event that the borrowers are unable to fulfill their repayment obligations. Should this happen, the mortgage will go into foreclosure, allowing the bank to seize the property and sell it to recoup their losses.

What is required for a mortgage?

Mortgages are one of the most common loan instruments used in America. A high level of importance is placed on home ownership, giving buyers a sense of pride and accomplishment. Fortunately, because the loan is secured with real property, mortgages can be relatively easy loans to get.

What will you need?

  • Down payment - Most banks require a down payment of 20% of the purchase price of the home. This makes the transaction less risky for the bank. If you don't have the extra cash, other options are available.
  • Private mortgage insurance is offered for individuals without large down payments. With mortgage insurance, mortgages can be obtained with as little as five percent down payment. In some cases zero-down mortgages are available.

  • Source of income - A steady source of income, usually in the form of full time employment, is required to be approved for a mortgage. This lets the bank know that you will be able to meet your monthly repayment obligations.
  • Credit history - Before granting a mortgage, lenders will run the applicants name through credit bureaus to find out their credit score. Credit scores are based on historical use of credit. A clean credit record should guarantee the applicant approval, and put him in a good position for negotiation. A poor credit score might mean that a mortgage is denied, or that the applicant will be paying higher than market interest rates.

Risks

Home ownership, typically the largest financial decision most people make, is not without risks. Make sure you do your homework and don't over-extend your finances. In the event that mortgage rates skyrocket, or housing prices tank (both very realistic possibilities), you could find yourself in a very precarious financial situation.

With the right research, and some understanding of how mortgages work, you will find yourself one step closer to home ownership, and to getting the best deal available.

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