What Is a Mortgage?
A mortgage is a type of loan that gives you the money to buy or refinance a home. In return, you agree to repay the lender with interest over a set period of time until you own the property outright.
There are many different types of mortgages, based on your specific needs and goals. The type you choose is a matter of personal preference, but it usually depends on factors like your credit history, the amount you want to borrow and how long you’d like to pay it off.
The best way to get a mortgage is to shop around for the right loan and choose a lender that suits your needs. This can mean working with a bank, a credit union, a mortgage-specific lender or an online-only lender.
When you apply for a mortgage, you’ll typically be asked to fill out an extensive application with information about your debt, credit, income and assets. This information will help the lender decide how much you can afford to borrow and what kind of interest rate will be best for you.
Depending on your situation and goals, you may also need to consider whether you’d like to get a fixed-rate or adjustable-rate mortgage. These two options can differ dramatically in terms of how they affect your monthly payments and the total amount you’ll owe at the end of the mortgage term.
Once you’ve selected a mortgage, it’s time to get pre-approved for it. This is a step that can save you significant time and money later on.
You can find out if you’re eligible for a mortgage by using our Mortgage Shopping Worksheet. The worksheet breaks down the details and terms of several loans, and helps you compare them so you can make an informed decision about which one will be best for you.
A mortgage is a contract between you and the lender that provides you with money to buy a home, which is then used as collateral against your loan. If you don’t pay your mortgage on time, the lender can repossess the property and sell it to cover the balance of your loan.
The most important aspect of a mortgage is that it allows you to buy a home with less than the full purchase price. You can buy a house with a small down payment, and that can be a big step for first-time buyers.
Another key part of a mortgage is that it enables you to build equity in the home over time. This means you can eventually use the money you have saved to pay off the rest of your mortgage.
Traditionally, lenders were only able to offer mortgages through banks, savings and loan associations or credit unions, but a growing number of nonbank companies have entered the market. This includes new kinds of lenders that are looking for ways to compete with traditional lenders by offering lower interest rates and more flexible terms.
The key to a low interest rate on your mortgage is to make sure that you have a good credit score and fewer red flags on your credit report. These will show the lender that you are a responsible borrower and can qualify for the lowest rates possible.