WHAT IS A MORTGAGE?
By Annie Hawkins of Sovereign Associates
Using a mortgage means you don't have to save up the full amount before buying that apartment or house you have been dreaming of.
A mortgage is an agreement between you and a lender that gives the lender the right to take your property if you fail to repay the money you've borrowed. The bank really owns your home until you have paid it off, but the positive side is that during your repayment period, you build up what's called equity. This is the difference between the remaining loan on the home vs. the value of the home. That's where your wealth is built.
The Mortgage Process
Would-be borrowers begin the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower can repay the loan. This may include bank and investment statements, recent tax returns, and proof of current employment. The lender will generally run a credit check as well. (See my May newsletter or blog, How Important is Your Credit Score?)
If your application is approved, the lender will offer you, the borrower, a loan of up to a certain amount and at a particular interest rate. Homebuyers can apply for a mortgage after choosing a property to buy or while they are still shopping for one, a process known as pre-approval. Being pre-approved for a mortgage can give you, the buyer, an edge in a tight housing market because sellers will know that you have the money to back up your offer.
Once a buyer and seller agree on the terms of their deal, they and their representatives will meet at what's called a closing. The borrower makes their down payment to the lender at the closing. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents. The lender may charge fees for originating the loan (sometimes in the form of points) at the closing. At Sovereign Associates, we can connect you with loan officers who can help you develop your best strategy for financing and buying your new home.
