For many, owning a home is part of the American dream. For most homeowners in America, getting a mortgage is just one of the steps it takes to get there. Today’s article helps to cover the basics and discuss some of the common words and phrases.
A mortgage is a type of loan you can use to buy or refinance a home. Although the term “loan” can be used generally, a “mortgage” is a specific type of loan that relates to homes or other types of land property. When you get a mortgage, your lender gives you a set amount of money to buy the home. You agree to pay back your loan over a period of several years, including interest. As such, you don’t fully own the home until the mortgage is paid off. The interest rate is determined by current market rates (out of your control) and the level of risk the lender takes to lend you money (within your control). A lender will typically look at your credit score (something we discussed in a previous article).
Below are a few common terms or phrases you might want to get familiar with:
Lender – A lender is a bank, credit union, or online mortgage company that loans you money to buy a home.
Borrower – The borrower is the person trying to get a loan.
Amortization – This refers to how your payments are broken up over the years, with parts of it paying off interest and some of it paying off the actual loan amount (aka the principal).
Down Payment – The down payment is the amount you pay upfront when purchasing your property.
Escrow – The escrow account is managed by your lender; you put money in the account so your lender can send payments for your taxes and insurance on your behalf.
The main steps to buy a home are: getting approved, shopping for your home and making an offer, getting final approval, and closing. Although this journey can take a while as you look for the perfect home and work through negotiations on getting the price down, you’ll at least be on your way to enter the field with some ideas and understanding of the process.
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