The Basics of Mortgage Loans

Before buying a house, apart from the size of your family, you need to have a good idea about what you can afford. Considering practical points like the price of the house, its age, size, the condition it is in, the land available, its location vis-à-vis the city/town , and most importantly, whether it needs to be renovated and if yes, then it should not exceed the resale value. Once you have a fair idea, the next step is to arrange the finance.

With the average price of homes ranging from $150,000 – $250,000 and plus in many cities, purchasing one outright is not possible for most. This is where a Mortgage loan comes in. It’s a loan secured against a real property or “collateral”, usually taken to purchase a home. This can be obtained from banks, local mortgage companies, credit unions, and even online mortgage brokers. A good idea would be scrutinize the offers of the aforesaid to determine the kind of loan that would suit you, before you actually settle for one. Before applying for it though, get pre-qualified. This establishes in writing the size of the loan you may hope to get, ensures that you are provided with a free, no-obligation, pre-approved commitment letter and clears a major hurdle in the process.

Other features such as, the size, method of repaying the loan, the maturity and the interest rate etc, vary and should be considered while choosing the lender and the loan. For example, the amount borrowed, excluding the down payment, is called the principal. One has to pay the interest rate determined over and above the principal, which is evenly distributed or amortized, over the period of the loan; the traditional being a 15-30 year fixed-rate mortgage (FRM), with a gradually decreasing interest amount with each successive payment.

While consulting a broker, you need to be careful of predatory mortgage lending but the best of them will offer you exhaustive information, practical and useful advice on the offers available and even assistance in case of a dispute between you and the chosen lender. However it is advisable to have the true costs of mortgage loan and have the entire agreement with all the clauses in writing. No matter how upfront your broker/lender might seem, it’s important for you to be clued in and self-reliant. After all it’s your future and security at stake.

A mortgage is probably the largest investment in life for many since it is the only way of acquiring a home promising the security and warmth of home. Deciding to take a mortgage is a very important financial decision but one that smoothens the long and winding journey to home ownership considerably.