Just about everyone dreams of home ownership at some point in their lives. First time home buyers are always excited when they are in the position of buying their own home. So it's important that anyone buying a home understand the mortgage process before they commit to buying real estate, so they are not hit with any surprises later on.
An Overview on Mortgages
A mortgage is a loan that is usually given by a bank, but can be provided from those who are selling real estate, to provide those seeking home ownership the funding for buying a home. Mortgages fall under the category of financial loans, but they are designed specifically for those buying real estate.
A mortgage loan contains a few different components, including insurance, principal, collateral and taxes. All of these components are important to remember when embarking on the search for a new home.
Payments and Contractual Obligations
Mortgages vary in their amount and have a few different payment options. Some mortgages operate on 15 to 30 year time frames, and they allow the borrower to make payments on a monthly basis. The amount of time the funding provider allots for the repayment of the loan depends on the size of the mortgage, the lender itself, and will include the repayment of the full amount along with an interest fee.
Mortgages are usually established in contract form when you're purchasing a new home or piece of property. As with the purchase of the home or property, the homeowner signs a contract with the bank upon securing his mortgage. This contract acknowledges your understanding of the terms of the loan and that you promise to make the required payments as outlined in the contract. This promise includes the use of the home or property as collateral for the loan.
Once you sign the contract, you agree to repay the original loan amount, which is referred to as the principal, along with the interest, which is calculated in a percentage referred to as the interest rate. Most lenders will penalize you for making late payments, and eventually can move to foreclose on the home if the payments fall further and further behind.
If you're getting ready to purchase a new home, it is best to familiarize yourself with the mortgage lending process before you make an offer on your dream home.