Mortgage Basics

A beginner’s guide to mortgage lingo.

Mortgages 101

What is a mortgage? It’s a loan for the purpose of buying property that needs to be repaid over a fixed number of years. Mortgages are secured by property. There are different types of mortgages that depend on the requirements of the lender and the needs of the borrower.

Anatomy of a Mortgage

Here are some important mortgage components to understand as you embark on your mortgage journey. If you have any questions, we’re here to help!

  • 01. Approval
  • 02. Payments
  • 03. Programs
  • 04. Closing Costs
  • 05. Rates

Approval

Different lenders and programs have various requirements that you must meet to qualify for a mortgage. These usually include credit, income, employment, and assets – as well as certain standards for the property in question.

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Payments

Most mortgage payments are made up of principal – the actual amount borrowed – and interest. The amount paid in interest decreases each month as the amount paid towards the principal balance increases.

Programs

Mortgage programs have different qualifying requirements and different costs. Down payments, mortgage insurance, and interest rates vary between them. Federally insured mortgages, such as FHA or VA loans, have more flexible qualifying guidelines.

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Closing Costs

A number of fees need to be paid when closing a mortgage. These are for services rendered to obtain the loan and may include property taxes, escrow services, title searches, appraisals and inspections, and mortgage insurance. Depending on the type of loan you’re borrowing, the closing costs may be rolled into the mortgage. By law, the buyer and seller need to know about the closing costs and agree upon it prior to closing the real estate transaction.

Rates

When taking out a mortgage, you’ll most likely have a number of interest rate options available. Interest rates change all the time and rates different greatly. Factors that affect interest rate include (but are not limited to) your credit score, the value of your home, and the down payment. Typically, you can get lower rates with mortgage brokers compared to banks and direct lenders. With banks, they usually offer you the maximum loan amount you can be approved for and that could result in higher rates.

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Mortgage Basics FAQs

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