Almost 40% of Americans have managed to pay off their mortgage so that they own their home free and clear. While it’s a huge accomplishment to pay off your mortgage, many Americans would never have been able to buy their home in the first place without one.
So, what is a mortgage? Do you need one? This guide will help you with what you need to know about mortgages to help you with understanding mortgages.
What Is a Mortgage?
To put it in simple terms, a mortgage is a type of loan that you get to help you purchase a home. This financing allows you to buy a home without having the full purchase price available in cash. You borrow the money you need to buy the home, and then make payments to the mortgage loan.
Parts of a Mortgage
You’ll quickly realize that there is a lot of paperwork for a mortgage with several documents to sign. There are two main parts, though.
The promissory note is the actual loan. These documents will include the interest rate, loan amount, term or length of the loan, repayment terms, and explanation of the principle and interest amounts.
The other part is the actual mortgage. This gives the lender the right to take ownership of your home should you fail to repay the loan.
In some states, there is a third part. This is the deed of trust. A third party is made the trustee.
How Do Mortgages Work?
If you need a mortgage, the first step is to choose a lender and apply for a loan. The lender will then approve you for a certain amount for your loan. You’ll have to sign your loan agreement for the mortgage to be complete.
The lender will then buy the seller of the home directly with the proceeds from your loan. You’ll then make monthly payments until the loan is paid off. Just as with any loan, you’ll have to pay an interest rate on your loan.
You don’t own your home free and clear until the mortgage is paid off. If you fail to repay the loan, the lender will foreclose on your home to recoup their loss.
It’s important to understand how mortgages work so that you know when to apply when looking to buy a home.
Tips for Mortgages
Before you apply for your loan, you need to check your credit score and report. Lenders base their approvals on these. The better your payment history and credit score, the more likely you’ll get approved and have more favorable loan terms.
Apply for a Mortgage Today
Now that you’re no longer asking, what is a mortgage, it’s time to apply for one. Start by getting your credit score and application together. Then apply for a mortgage with your chosen lender.
Once approved, you’ll have to sign all of the paperwork and then begin repaying the loan. After you pay off the loan, you’ll own your home free and clear.
Browse our other articles for more advice on how to succeed in owning and maintaining your home.