There are wide range of mortgage options available today. With so many different mortgage products out there, it can be difficult to know which one is right for you.
As I mentioned previously, a mortgage is perhaps the most essential element along the path to homeownership.
Very simply, a mortgage is a loan that you get from a bank or other financial institution that enables you to buy a house or other piece of real estate. It requires a regularly scheduled payment that is often blended to include both principal and interest.
The key difference between a mortgage and a regular loan, is that when you take out a mortgage, you’re putting something up for collateral. That something is the home you’re buying.
For example, let’s pretend you bought your home for $300,000 and you had saved enough money to come up with a $60,000 down payment. This would mean that in order to purchase the house you would have to borrow $240,000.
Your $60,000 down payment goes to the seller and the lender kicks in the remaining $240,000.
Under the mortgage agreement you’re the owner of the house with one condition. If you don’t make your payments the lender has the right to foreclose the house, evict you, and sell the house to try and recover their part of the loan.
But don’t, that’s the worst possible scenario right?
The fact that you’re here looking for information and doing your homework already put’s you further ahead than most and probably means you’re serious about becoming a homeowner.
Assuming you make your payments on time, you’ll begin to build up equity in your home. Basically, equity is the value of your home that actually belongs to you.
Here’s how you calculate it: Take your house’s fair market value and subtract how much you owe on the mortgage you took out against it.
If we look at our example above, we can say that you have $60,000 in equity because you have a $240,000 mortgage on a $300,000 home.
But there are two ways of building equity, one is through paying off your mortgage and the other is when your home appreciates in value.
Now that you understand the basics of what a mortgage is, you need to know how a mortgage actually works.
Are you a potential first time homebuyer looking to get the keys to your first place? Well your first step is to get pre-approved for a mortgage.
How? I’ve put together a five-part free email class that spells it out, step-by-step. Sign up below: Each one gets delivered to your email inbox hot & fresh about every 3-4 days. It it you’ll learn:
- Why you should get pre-approved now
- The nuts and bolts of mortgage pre-approval
- The documents you need to organize