What Is A Mortgage ?
AMER AWAD | 8-MINUTE READ
FEBRUARY 28, 2022
Many Americans dream of owning a home and work for years to achieve that goal. A mortgage helps individuals own a home and is only a small step of the process of becoming a homeowner.
There are many factors that go into obtaining a mortgage and each mortgage is a unique case based on the individual income, credit score, and other that we will cover in this article.
What a Mortgage Entails
Many home buyers dream of owning a house with a small down payment to keep enough funds in the bank to do upgrades to the newly purchased home. What if there are several programs designed for future homeowners that not only have a low down payment but require absolutely no down payment?
Well, there are several options for buyers who either don’t have the funds available for the down payment or would like to save their capital to spend on upgrades. There are many ways in which borrowers can minimize their down payment down to zero and here are the ways you can do the same.
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What is a Zero Down Mortgage?
Many lenders used to require the borrower to have some down payment, whether the down payment is 20%, 10%, or even just 3%. A down payment was required. Countless individuals think the only way to get a mortgage in today’s real estate market is by having a down payment of 10% – 20%, even more in some cases, when it is not the case anymore. Individuals are no longer required to save $30,000 – $50,000 for a down payment.
You can avoid months and even years of saving for a down payment on the property of your dreams without fear of losing the property to someone who has spent years saving 20%. Not only that, due to not paying a down payment, you will also have more cash on hand to help with renovations, furnishings and moving costs.
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What Are The Mortgage Components?
The majority of properties that are purchased use a mortgage to acquire the property. A mortgage has different components and each component is important to the finalization of a mortgage. The components are:
- Property: The actual physical location an individual or business is purchasing.
- Mortgage: A loan used to purchase a property by an individual or business.
- Lender: The financial institution or individual that is financing the mortgage.
- Borrower: The individual or business that is seeking the funds to purchase a property.
- Interest: The rate at which the borrower pays to the lender.
- Principle: The total amount the borrower has borrowed, plus the interest that borrower will need to pay the lender.
- Underwriting: The process in which a borrower is assessed for their financial circumstances and the lender verifies the borrower’s income, assets, debt and property.
- Completion: The final closing stage of a mortgage, after which the borrower is now a property owner.
- Foreclosure: The legal process in which the mortgage company legally obtains ownership of the borrower’s property due to lack of payment.
To get the lowest interest rate, make sure you don’t have any late payments, lower your debts, first time home buyer is a plus, bigger down payment. Contact us to learn more!
The Interest Rates
Aside from the property, a mortgage also has another important aspect to it, which is the interest rate and can vary from month to month. The interest rates can vary greatly depending on your mortgage company, down payment, loan size, home location, loan term, credit score, income, and the total amount of debt a person has. Not everyone will get the same rate as every person’s financial wellbeing is different.
The mortgage rate that you are able to get stays with the length of the mortgage, which can be up to 50 years. Many borrowers can secure a mortgage with a high interest rate due to their financial circumstances. After improving their creditworthiness by reducing their debt, increasing their income, and improving their credit score, they are able to reduce their interest rate.
The process of having getting a lower mortgage rate for your old mortgage is called refinancing, in which a homeowner accepts a new mortgage on the same property, but with a lower interest rate.
Types of Interest Rates
Mortgages come with two main types of interest rates, fixed-rate and adjustable-rate mortgage (ARM). Fixed-rate means the interest rate on the mortgage stays the same throughout the duration of the mortgage, whether the loan is for 5, 10, 15, 20, or 30 years or we even specialize in customizing your own duration between 5 and 30 years.
The benefit of fixed-rate mortgages is that the interest rate will stay the same regardless if the interest rates increase or decrease throughout the years.
ARM-based mortgages on the other hand are loans in which the interest rate can change during the term of the loan. The most common type of ARM mortgage is labeled as 3/7 ARM or 5/7 arm, which means the loan will have the same interest rate for the first 3 or 5 years and then is subject to change every year after the 3rd or 5th year. The new, yearly rate is dependent on the current mortgage rates which can be higher or lower than the original rate.
ARM rates are usually a great type of loans for certain people. Usually ARM have the lowest possible rates for the first 3 or 5 years and then go up depending on the current market rate. This type of loan would benefit someone who knows will not live in that property more than the fixed rate years or will refinance after the rates go down with that time frame.
Types of Mortgages
Another aspect that can influence interest rates is the type of loan, such as having a conventional loan, government-insured loans such as Federal Housing Administration loan (FHA), Veteran Affairs loan (VA), or a United States Department of Agriculture loan (USDA) loan. An individual will need to examine their situation and choose the loan that fits their needs, as some may not be eligible for all loans types as they are intended for individuals in certain lines of work.
You Still Have Questions or Want to Find out More?
At Best Mortgage, we always strive to give our borrowers the best solutions with our extensive network of lenders and devoted loan officers. We make the application process as easy as possible and our team is dedicated to helping our borrowers in achieving their dream of homeownership. Our loan officers are always ready to help you navigate the mortgage preapproval process. For more information call (734) 519-1827.