Know the Fundamentals of Mortgages Loans
Owning a home is a dream for many US citizens; most of them opt for a mortgage to manifest their dream. If you are one of such potential homeowners, you must contemplate mortgage fundamentals, the type of loans, and the process in simple terms. A mortgage, aka mortgage loan, is an accord between the borrower and a mortgage lender to finance or refinance to purchase a property without paying the upfront cash. This contract provides the legal right to the lender to possess the property if the borrower fails to repay the loan amount within the specified tenure. The repayment includes the principal amount and the interest stated on the mortgage contract.
All mortgages are loans
Home mortgages are an appropriate financial instrument that helps you to buy a home if you do not have the required resource at your disposal. In some situations, it means sense to opt for a mortgage loan even if you have the cash to buy the property. In this scenario, you have the resource to invest in other liquid or immovable assets with enough potency. The term loan refers to an agreement where the borrower agrees to pay the principal amount, with or without interest, to the lender within a specific time. A mortgage is a loan to purchase a property, implying all mortgages are loans, but all loans are not a mortgage.
As there is collateral pledged by the borrower mortgage is a secured loan. In this case, the guarantee is the home you intend to purchase. If a borrower fails to pay the agreed amount, the lender has a legitimate right to possess the said property through a process called foreclosure. When you sign a mortgage contract, the lender approves and disposes of a certain sum of money to purchase the property. You, as a borrower accorded to pay the amount (principal +interest) within a stipulated time. Until the loan is cleared, the lender holds the legal right of the said home. A fully amortized loan comes with a set of terms and conditions with a scheduled payment structure, so at the end of the tenure, the loan is fully paid off.
If you have a stable job, regular adequate income flow, and a good credit rating, getting a mortgage loan is fairly easy. Most real estate agents and developers stipulate preapproved loans for the property from banks or other financial institutions. It is a fine thought to get loan approval for a mortgage before you look for a property. This gives you an idea of how much money is permitted as a loan depending on your current financial status, and you don’t squander time seeking property out of the specified allocation. The preapproved loan gives you an edge while negotiating with the developer or real estate agent, particularly when the housing industry is stiff.
Preapproved home mortgage loans entail the lender have scrutinized your financial status and credit rating and accordingly approving a lump sum intended to purchase a home. The letter of intent from the lender states you have the required sum to purchase a property, so the real estate developer or agent gives you priority over other potential buyers.