A mortgage is a loan that you get from a bank, credit union or other lender to help you buy a house. It works like any other loan, but instead of being paid off in one lump sum, you pay back the money over a certain period of time (usually 15, 20, or 30 years).
The mortgage process begins with applying for a mortgage and completing a financial review. The lender will look at your income, employment and other factors to determine whether youll be able to repay the loan. Theyll also run a credit check, and they might want to see proof of property ownership, such as an appraisal or title search.
If you qualify for a mortgage, the lender will issue you with a Mortgage Estimate, which shows how much you can borrow and what your monthly payments will be. The Mortgage Estimate will also give you an idea of how long it will take to pay off the loan, so you can budget accordingly.
Once youve received the Mortgage Estimate, you can start shopping for a loan from multiple lenders or mortgage brokers. These firms can often save you time by comparing offers, but they can also charge fees that you may not be aware of until youve started talking with different companies.
Your mortgage will be made up of four main components: principal, interest, taxes and insurance. These are all combined into a single monthly payment called PITI, which stands for principal, interest, taxes and insurance.
Youll also need to pay homeowners insurance and any mortgage fees. These expenses are typically required by your lender, but you can opt out if you can afford to pay them yourself.
A portion of your mortgage payment goes toward paying off the principal balance, which decreases over the course of the loans amortization schedule. However, in the early years of the mortgage, youll still be paying a lot of interest. This can increase your total payment and take longer to pay off the mortgage.
The amount of your monthly mortgage payment will depend on a number of factors, including your home price, down payment, loan term, taxes and insurance. A calculator can be helpful to estimate your monthly mortgage payments, but you should also shop around for the best possible rate by comparing loans from several lenders and brokers.
Buying a home is a big commitment, and understanding the mortgage process can help you make smart decisions that will benefit you in the long run. Experian offers free credit monitoring and tools that can help you safeguard your credit and avoid costly mistakes when you apply for a mortgage or refinance your existing loan.
When you purchase a home, the seller must provide the buyer with a property disclosure statement. This includes information about the property, such as its address, number of bedrooms and bathrooms, and how much the property is worth. It also gives you the right to inspect the home.
