5 VITAL THINGS YOU MUST KNOW WHILE APPLYING FOR A MORTGAGE.
INTRODUCTION
Mortgages have helped billions of people all over the world buy homes and acquire real estate
properties. And most of these people, just like you, did not have the liquid capital required to
purchase the property entirely on its own.
You need not get into debts and grumble through loans with exorbitant monthly repayment plans
when you can get a mortgage. It has helped billions of people acquire and own properties. I'm
sure it can help you too!
WHAT IS A MORTGAGE
A mortgage is a loan that is secured by real properties. The word mortgage is derived from a
French legal term used in Britain in the middle Ages. The word means ‘Death Pledge’.
But not in the sense of the gruesome picture that comes to mind when you hear ‘Death Pledge’
Fret not, the word ‘death’ in this sense doesn't refer to you or any other person dying.
Instead, it means that the pledge dies once the loan gets repaid, and also that the property dies (or
gets forfeited) if the loan doesn’t get repaid.
In simpler terms, it means that the pledge ends when either the obligation is fulfilled or the
property gets taken through foreclosure.
A mortgage is a conditional sale. If the borrower is unable to meet up with the payment
agreement, the property is sold to recover the money borrowed for its purchase.
A mortgage can also be described as the consideration a borrower gives for the debt, which is in
the form of a collateral for a benefit (loan)".
Individuals and businesses all use mortgages to buy real estate properties. It can be in the
instance of individuals mortgaging their home or they can be businesses mortgaging commercial
property (for example, their business premises, residential property let to tenants or
an investment portfolio).
The borrower then begins to pay up both the loan and interest over a specific period, after
payment has been completed, the property becomes entirely theirs, mortgage-free!
It can be used to purchase or maintain a home, land, or other types of real estate. The borrower
agrees to pay the lender over a specific period, in a series of regular payments that are divided
into principal and interest. The property purchased with the loan then serves as collateral to
secure the loan.
Mortgages are commonly used by homebuyers to finance real estate. When approved, borrowers
sign a legal document (known as a mortgage note) that promises to repay the loan, with interest
and other costs over a while.
A borrower must apply for a mortgage through their preferred lender and ensure they meet
several requirements, including minimum credit scores and down payments. Mortgage
applications go through a rigorous underwriting process before they reach the closing phase.
Mortgage types vary based on the needs of the borrower, such as conventional and fixed-rate
loans.
The lender can take possession of the home if the borrower stops paying.
The mortgage documents should also outline the roles and responsibilities of the lender and the
borrower, what would qualify as a breach in the agreement, and what property the mortgage is
tied to.
WHERE CAN I GET A MORTGAGE?
The lender of a mortgage is usually a financial institution, such as a bank, credit
union or building society, depending on the choice of the borrower. And the loan arrangements
can be made either directly or indirectly through intermediaries.
Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method
of paying off the loan, and other characteristics also vary considerably, from institution to
institution.
The first step towards getting a great and favourable mortgage is to get the right mortgage
company to transact with.
While getting a mortgage, know that each type of Mortgage Company has its disadvantages and
advantages.
1. Banks and mortgage bankers: Banks make their money from investors and their
customers. They often offer different types of mortgage loans for qualified borrowers.
This is a great option if you prefer to have all of your financial accounts in one place;
however, it may take longer to close your loan. Most times, they also do not offer
government-backed loans.
2. Credit unions: Credit unions are very similar to banks, except that they are owned by
their account holders, known as members. These institutions usually require membership
and get funds from their members. Credit unions usually offer loans only to their
members. They may have lower costs and interest rates, but like banks, they may take
longer to close. They also do not offer government-backed loans.
3. Mortgage lenders: Mortgage lenders get their money from banks, also known as
investors. But Unlike banks and credit unions, which offer a variety of financial services,
mortgage lenders exist for the sole purpose of real estate loans. They also do all their loan
processing, underwriting and closing functions "in-house." They can take care of the
entire process with internal staff. This helps to shorten the time frame involved with
obtaining a mortgage.
4. Mortgage brokers: A Mortgage broker is essentially a “middleman” between the
homeowner and bank. Mortgage brokers, however, do not lend money directly. They
have access to many lenders, as well as many different loan programs. They can give you
access to more options, but they do not have as much control over the speed of loan
approval as a bank or mortgage lender. In some cases, especially when your credit isn’t
perfect, a mortgage broker can shop around to find a home loan that isn’t offered by a
bank, credit union, or even a lender.
5 VITAL THINGS TO KNOW WHILE APPLYING FOR A MORTGAGE
1. CREDIBILITY OF THE MORTGAGE INSTITUTION
The very first thing I’m going to hammer into your ears at this point is that you should not enter
into any transaction whose terms you do not fully understand. There are so many frauds out
there, looking to exploit and make money from innocent persons by all means.
So apart from making use of trusted professionals who have made great industry progress and
whose presence and credibility has been guaranteed over some time, you should also understand
the terms of the mortgage, type of loan, repayment time frame and the structure of the institution
you intend to get a loan from.
Know whom you are getting it from, and be certain that you can meet up with their terms. Just so
you don’t end up defaulting and losing the entire property in the long run. Read through the
terms of the loan and be certain that you do fully understand, and can work with it.
The institution is on the lookout to make money. And in many transactions like this, it is either a
party loses and the other gains or both parties benefit on equal grounds. You should be careful
not to be on the losing side.
2. A GOOD CREDIT SCORE IS A MUST-HAVE
Your credit score is the starting point for lenders and if it's not high enough, it also could serve
as the ending point. Most lenders want a credit score of 680 or higher to start talking about a
mortgage. It’s possible to get one with a score under that, but it would be a stretch to think
you’ll get a conventional loan from a bank or online lender.
A credit score between 680 and 750 will lower the interest rate and anything above 750 will get
you the lowest interest rate possible. If you’ve stumbled with your credit history and your score
is sub-680, you aren’t eliminated from finding a home loan, but it may cost you more.
3. YOU MUST HAVE THE REQUIRED DEBT-TO-INCOME RATIO
A debt-to-income ratio is the ratio of your monthly debt payments (credit cards, auto, student and
personal loans, store credit accounts and any loans you co-signed) divided by your gross income.
Lenders use it to measure your ability to handle mortgage payments.
For example, if you make $4,000 a month and pay $1,500 for credit cards, $300 for a car loan
and $200 for a student loan, your debt-to-income ratio would be 50% (2000 ÷ 4,000).
Most lenders put the suggested debt-to-income ratio at 36% or less. So, if you have an
inadequate debt-to-income ratio, it would be wise to find ways to increase your monthly income
and pay down debt.
So before applying, make enquiries to find out what the proposed mortgage lender institution
expects your ratio to be.
The inability to meet up with the expected debt to income ratio limit is the reason why several
mortgage applications get denied.
4. YOU NEED TO MAKE A DOWNPAYMENT
The bigger the down payment, the better it is for the buyer. It’s the first jab at reducing the amount of
money you must borrow and thus reduces the amount you must repay.
The goal for most buyers is to put down 20% of the purchase price, which affords them a lot of
benefits, such as:
A] Receiving the best interest rates and terms for your mortgage.
B] Not having to pay Private Mortgage Insurance (PMI), protects the lender if you default. PMI
usually is about 1% of the loan amount or about $125 a month on a $150,000 mortgage. It is
required on loans if you don't have 20% down.
C] Paying less interest and points on a loan, which means making a lower monthly payment.
You’re borrowing less, so you pay less and lower payments to mean a faster payoff.
If you’re buying your first home, many agencies also provide down payment assistance programs
in the form of grants and incentives that can cover some of that money for you.
5. YOU NEED A MORTGAGE BROKER
When considering whether or not to use a mortgage broker, many people think about their
commission and home value. Although that’s important, the broker’s knowledge about
mortgages can save you more than that cost over the life of your loan.
A mortgage broker is a person or institution who acts as a matchmaker between property buyers
and lenders – i.e. helping borrowers get home loans and helping lenders get customers.
A good broker will Work out what you can afford to borrow, Understand your property goals
and help you achieve them, Discover options suitable to your choice, and also give you in-depth
professional advice on the various loan products, what they cost and what features they have.
Once you get a highly credible Broker, relax and be rest assured that you are in safe hands.
CONCLUSION.
Why go into high-interest debts, when you can get a mortgage, pay over some time and the
property becomes yours?
Note that the mortgage becomes risky when you are matched with the wrong type of borrower.
Therefore you must be on the lookout for an institution with plans that best suit you.
Be sure it is one which you will be able to pay over the period agreed on, so you don't lose the
entire property.
Also, ensure that you provide the required documents and be as transparent as possible. You
should also understand that this process is time-consuming. Underwriters must talk to a lot of
people and review a lot of documents before committing their institution to lend hundreds of
thousands or maybe even millions of dollars for you to buy a home.
So be patient, so you don’t end up being duped by fraudsters in the blind pursuit of getting the
mortgage approved in a short time.