Simply put, a mortgage is a loan secured by real property and paid in installments over a set period of time. The mortgage secures your promise that the money borrowed to buy  your home will be repaid.

According to Wikipedia:

A mortgage loan is a loan secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.

Elements of a Mortgage:

1. Mortgage Approval

Qualifying for a mortgage requires meeting a pre-determined set of guidelines established by a lender, which may include credit history, income, employment and assets.

In addition to personal qualifying factors, a property must also meet certain standards set by lenders before a borrower can obtain a mortgage loan secured by that real estate.

2. Mortgage Payments

On a traditional 30 or 15 year fixed rate mortgage program that involves principal and interest, each payment made is divided into two parts (we’re not including taxes or homeowners insurance as part of this discussion):

The first part of the mortgage payment, which is commonly referred to as principal, goes to paying down the initial amount borrowed.

The second part is the interest paid for the money borrowed to purchase the property.

The amount paid in interest decreases each month and the amount paid towards the principal balance increases. This apportioning is referred to as amortization.

Other types of mortgage payments available can include options for paying interest only or an adjustable interest rate.

Either way, it is extremely important to have a solid understanding of the full payment and terms before moving forward with a particular option. ASK QUESTIONS until your understanding is clear!!!

3. Mortgage Programs

Mortgage Programs come in many different types and flavors depending on the down payment and/or monthly budget a borrower has been approved for.

There are federally insured mortgages, such as FHA, USDA or VA loans, which have more flexible qualifying guidelines. There are Simi-Government loans, called Conventional loans that are backed by Fanny Mea and Freddie Mac. Jumbo loans are loans that exceed the Conventional loan amount limits. And then there are private loans known as “Hard-Money” loans given by private investors.

4. Closing Costs / Fees

The actual cost of obtaining a mortgage mainly depends on whether or not the borrower is paying points for a lower mortgage rate.  There are also other loan processing and underwriting fees, title fees, taxes and other like costs associated with the work involved in the transaction.

However, please keep in mind that there may be other closing costs not associated with a mortgage or real estate transaction to be aware of. Appraisal, pre-paid property taxes, insurance and interest, HOA dues and inspections are a few additional out-of-pocket expenses you need to budget for.

5.  Mortgage Rates

While mortgage interest rates may change several times a day, there are a few market factors you can pay attention to which may impact your final payment.

Whether you’re shopping for the best rate, or trying to determine the difference between the Note Rate and APR, it is definitely important to work with a helpful, knowledgeable and patient loan officer who is willing to take the time to help you understand this sometimes overwhelming process of buying a home.

Ed and Barbara Heiser/ The Heiser Team 480-830-8030 Office