What is a mortgage? This term came to us from the Greek language and in translation means “pledge”. It is a type of loan you can use to buy or refinance a home. If you need a loan, you mortgage your property. If you settle with the lender, the deposit will be withdrawn. If you cannot pay the loan off, the property will be sold by the lender. A home serves as collateral.
- Money. The main advantage of the service is the ability to rent housing in the absence of the required amount of funds. Every American can get the required amount for the purchase of housing by applying for a mortgage loan.
- Personal housing. After you sign the agreement with the lender, you acquire the status of the homeowner and can dispose of it as you want. You can make repairs, rent it out, make redevelopment provided that it does not contradict the legislation.
- Unchanged interest rate. The interest rate is fixed for the entire period of mortgage lending.
- Loan term. Usually, the maximum loan term is 30 years. You have the right to independently decide what period you need to pay off the debt.
- State support. The state helps borrowers by creating various programs aimed at repaying part of the mortgage, reducing rates, etc. If you meet the conditions of a particular program, you can safely use it. This is a big advantage of the mortgage lending service.
- Early loan repayment option. It is not necessary to pay the loan for the entire period specified in the agreement. You can repay the debt before the due date – when it becomes possible to close the entire debt at once.
- Refinancing of the existing mortgage. If any other lender offers a lower rate, you can safely choose a lender with more favorable conditions.
- Safe deal. The lender’s employees carefully check both the acquired real estate and the transparency of the transaction from the legal side. The likelihood of being deceived is excluded.
- Loan extension. If you face a difficult financial situation, the lender can provide a deferral of debt repayment.
But you must bear in mind that a mortgage also has advantages.
- A mortgage loan is a huge debt, which the borrower is obliged to pay within the term specified in the contract.
- Large overpayment. In addition to the “borrowed” money, you will need to pay interest. Mortgage rates in some credit institutions reach 15% per annum.
- Down payment. When taking a mortgage, you will need to make initial payment (10-20%). Not everyone can afford such a payment. In addition, there are other mandatory costs, for example, life insurance, payment for the services of specialists involved in the transaction (notary, appraiser, realtor, etc.).
- It is impossible to sell or donate an apartment until the entire debt has been paid off. The full right to own property comes from the moment of full debt repayment.
- Paperwork. The lender strictly checks not only the legality of the transaction but also the borrower. To apply for a loan, you must collect a package of documents confirming you are officially employed and have a stable official income. This procedure can be time-consuming.
- The lender may reject your application if you have low income or bad credit history.
- Life is changeable and there are situations when there is no way to make the next payment for the apartment. If you miss several payments in a row, you may lose living space.
- Real estate pledged. While the lending agreement is in effect, the property is pledged by the bank. This is a kind of insurance for the organization in case the borrower does not fulfill the obligations specified in the contract.
Things you need to remember when applying for a mortgage
You need money to buy an apartment – the bank can provide you with it. The bank needs guarantees that you will be able to repay the loan amount + interest. That is why, be prepared that you will have to go through a whole procedure and answer many questions. After all, the bank is at risk. First of all, the creditor will be interested in your income since obtaining a mortgage loan will completely depend on your ability to repay the debt to the bank. You will have to spend about half of your income to reduce debt to the bank and pay monthly interest. Can you live on the remaining half of your income?
The bank will also ask you: “What is the cost of an apartment you want to buy? And how much can you pay as a down payment?” And the less your down payment, the more interest you will have to pay.
Some banks that deal with mortgages only take into account the official income. Other banks are ready to include all additional earnings in the total amount of your income. For example, if you rent out any real estate, this income can sometimes exceed your main income. But if you do not work anywhere, you will definitely not receive money from the bank, even if you have additional income. You need to be officially employed in any case. But if you have been working for less than six months, then you will not be able to get funds either.
In addition, many banks require guarantors for mortgages. If you cannot repay the loan, the bank will collect it from your guarantors. And if they fail to take anything from them, then the apartment will be sold through the court so that the lender can cover its losses. The number of guarantors directly depends on the amount of the loan taken. And the more income the guarantors have, the higher loan you can get.
First steps for obtaining a mortgage
What is the first step to take on the path of obtaining a mortgage? The surest step now is to visit a real estate company, which acts as a kind of intermediary in the real estate market. By concluding an agreement with them, you will receive an experienced and competent professional to help you. The realtor will accompany your transaction and warn about all possible “undercurrents”. The realtor will be able to help you choose the right bank, appraisal company and tell you how to behave in order to get a loan for sure. Do not spare the money spent on the realtor, they will return to you a hundredfold.
Very often, banks take into account the income received not only by the borrower but also by the entire family.
In addition to all of the above, the amount of the mortgage loan provided by the bank can be affected by the wo experience in the last place, the education of the borrower, age, and other factors.
So, should I get a mortgage?
Since the mortgage has both pros and cons, you must know the situations when this option will be really reasonable and profitable, and when not.
If you are responsible and realize that every month you need to give 1/3, or even more, from your personal income or from your family’s income, and you are ready for this, then you can apply for a mortgage. This option is definitely not suitable for frivolous people.
Sometimes it is difficult to save the required amount, and the value of real estate grows. And not everyone knows how to save when there are so many temptations and advertising around. It is sometimes easier for a person with a stable good income to get a loan and pay a large amount every month, then the mortgage will be paid off faster and you can move to your own home immediately after the purchase of the apartment. And it is very difficult to pay rent for housing and at the same time save for your own.
Each borrower must understand what a mortgage is. For some people, it is “bondage for life”, but for others, it is a good chance to buy their own home. In either case, you need to first study the advantages and disadvantages of mortgage lending, choose a suitable bank, and carefully read the terms of the agreement (including the letters in small print and the footnotes under the asterisk). Then make a decision.