The mortgage lending environment is in a period of change, now that interest rates are on the rise, but that shouldn’t deter you from taking the leap into home ownership.
Realistically, most property owners will have a mortgage (unless you happen to have the cash to buy the asset outright). However, before diving into a mortgage, it’s best to understand the basics to help you avoid costly mistakes.
So, what is a mortgage? It’s the term applied to a loan used to purchase a property and, most commonly, a primary residence. The loan amount is tied to the property’s value and the borrower’s income and debt standing. It is the security of the property’s equity and title that sets a mortgage apart from a standard personal loan. If you don’t pay your mortgage, the lender will pursue foreclosure on your property and take possession.
How does a mortgage work?
Most loans are fully amortized and secured against a property’s title. Each month the borrower makes a payment that includes a portion of interest and principal.
Mortgages can be set for various lengths, but most buyers commonly think of them as a 30-year term. Payments made at the start of the loan term are primarily interest payments, and as the principal decreases throughout the years, their payments steadily include less interest. If you’re unsure how an amortization schedule works, have your mortgage broker review the details for you.
How do you get a mortgage?
Before you start shopping for a home, you should get preapproved. Mortgages are arranged by banks, credit unions, or mortgage brokers. Mortgage brokers are an excellent option because they can shop between banks and credit unions to find the best loan product and structure for your financial circumstances.
Obtaining a mortgage is document-heavy, so don’t be shocked when you have to start digging through your archives to find a document requested to support your loan application.
With a pre-approval in hand, you can confidently shop for your new home. Once you have made an offer, your mortgage broker will work with you to ensure the loan requirements are met and funded to finalize your home purchase.
While mortgages are a commonly used loan product, getting one is not a simple process. Working with an experienced professional to guide you through the process is essential, so you don’t miss out on the property of your dreams.
If you’re thinking of jumping into the housing market, are ready to start the pre-approval process, or what to get more information about alternatives, reach out to a member of our team.