What is a Mortgage?

A mortgage is a loan secured by a property/house and paid in installments over a set period of time. The mortgage secures your promise that the money borrowed will be repaid.For most of us, a mortgage is the largest and most serious financial obligation we ever make. There are many different types of mortgages, each with its own advantages and disadvantages, it is very important that you do your research.Remember that many people were impacted by predatory lenders and given mortgages that they could not sustain during the housing crisis of the last two years. Understanding these differences will enable you to choose the right mortgage for your financial situation and housing goals. Be an educated consumer!

Repaying a Mortgage: What is Included?

The mortgage is usually to be paid back in the form of monthly payments that consist of interest and a principle. The principal is repayment of the original amount borrowed, which reduces the balance. The interest, on the other hand, is the cost of borrowing the principal amount for the past month.

A monthly mortgage payment includes taxes, insurance, interest, and the principal. Taxes are remitted to local governments as a percentage of the value of the property. These tax amounts can vary based on where the borrower lives and are usually reassessed on an annual basis. The insurance payments go toward mortgage and hazard insurance. The mortgage insurance protects the lender from loss incurred if a borrower defaults, whereas hazard insurance protects both the borrower and the lender from property losses. The funds may be held in escrow or the lender may collect the taxes and the insurance.

Applying for a Mortgage: The Steps Involved

The process of applying for a mortgage loan can be a stressful process if it is not researched. The borrower should know what type of home is desired and what the budget will allow. This may determine the type of mortgage that should be acquired. That is why it is important for the borrower to acquire a copy of their credit report and check it for errors. If there is any incorrect information, it needs to be disputed.

The lender receives an appraisal of the property and this appraisal determines the market value of the home, which is used for collateral in the loan. The borrower is charged a fee for the appraisal service and is usually included in the closing costs.

When the mortgage application is complete, the borrower will be asked for a considerable amount of information. That is why the borrower should be prepared to give the lender the following information:

  • Bank information such as the name, address, account numbers, and three months of statements.

  • Three months of investment statements.

  • W-2s, pay stubs, proof of employment and two years worth of income.

  • Tax returns and balance sheets for the self-employed.

  • Debt currently owed, including amounts due and account numbers.

  • Divorce papers(if applicable).

Once the application is completed, the lender will review the application and decide whether to deny or approve it. If approved, the last step in the process is the meeting in which documentation is completed and the deal is closed. If denied, the prospective borrower should talk to the lender in order to devise a plan and find out why the application was denied. By law, the prospective borrower should receive a disclosure statement from the lender in writing that states why the application was turned down.

Employment History and Your Sources of Income

The ability to pay is one of the primary decisions in considering a loan application for approval.

All information regarding income and employment history must be submitted. This information includes:

  • Employer’s name, address, borrower’s job title, time on the job, bonuses, average overtime, salary, and students may be required to provide transcripts.

  • Two years of W-2 forms and most recent paycheck stubs.

  • For the self-employed, financial statements for two years and all tax forms must be provided, including a profit and loss statement for the current year.

  • If there are gaps in employment history, there must be a written explanation.

  • A VOE or Verification of Employment form may be sent to the current employer.

The Closing

The last step in the process of applying for a mortgage is the closing process. All parties sign the necessary papers and officially seal the deal. Ownership of property is transferred to the buyer, so the closing date makes for a great opportunity to make any necessary changes at the last minute.

These procedures vary from state-to-state, but in most states the following people are present at the closing:

  • A closing agent that may work for the lender.

  • The Borrower's and the Lender's attorneys

  • Title company representative

  • Seller of the home

  • Real estate agent for the seller

  • The borrower (known as the mortgagor)

  • The lender (known as the mortgagee)

The borrower is required to sign a number of documents when closing. Below is a description of those documents:

  • The one selling the home must bring the deed with them to the closing. It must be signed and notarized so that the lender can have the deed filed at the county’s Deed Registrar since it is public record.

  • The HUD-1 Settlement statement itemizes the services by the lender that is related to the loan and charges both the seller and the buyer. This is required by federal law.

  • The mortgage note must be signed because it is the buyer’s promise to pay according to the terms. These items include payment due dates, amounts, and where the payments should be remitted to.

  • The statement that gives the actual rate of interest, APR, fees, and other costs is the Truth-In-Lending Statement.

Simple Mortgage Calculator Simple Mortgage Calculator

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Mortgage Refinance Calculator Mortgage Refinance Calculator

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Interest Only Mortgage Calculator Interest Only Mortgage Calculator

Interest Only Mortgage Calculator shows you the monthly savings you would incur by taking an interest only mortgage over a fully amortized mortgage. By comparing your savings on interest only mortgage calculator, you will be able to determine if the savings justify one particular mortgage over another. Interest only mortgage calculator will also help you determine your potential cash flow savings between getting a fully amortized mortgage loan or having an interest only mortgage payment.

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Mortgage Affordability Calculator helps you decide how much you can afford to spend on a monthly mortgage payment and calculates the value of a mortgage that you might qualify for base on your income and monthly expense.By figuring out a reasonable budget that you can afford to pay for a mortgage each month. Using this calculator, you will get a better idea of the amount that you may qualify for a mortgage and can use this information to start planning for your mortgage and looking for propor properties.

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Mortgage Early Pay Off Calculator helps you figure out how much money you can by adding extra payments every month, every year or once during the mortgage period. This calculator also shows you how much time you can shortten on mortgage term by adding extra payments with various options. Paying off your mortgage early is a great way to reduce your debts and costs of living.

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Mortgage Comparison Calculator help you compare various features between two mortgage plans and determines which mortgage plan is best for you. This is a useful tool if you have one or more mortgage offers and are trying to decide on what gives you the best option in terms of flexibility and payments. Using mortgage comparison calculator will give you a thorough idea of the positives and negatives of different mortgages and help you make the best decision.


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