The Skinner Team

Mortgage: The word 'mortgage' spelled out using Scrabble tiles, arranged neatly on a surface. The distinctive letter tiles showcase the term in a playful and engaging manner, adding a touch of creativity to the representation of home financing and real estate.

Mortgage: Loan Basics for Beginners

For many, owning a home is part of the American dream. And for most, getting a mortgage is just one of the steps to getting there. In this blog, we will cover some of the mortgage basics, including defining a mortgage, how to get one, introduction to the types of mortgages and the benefits of getting one.

Mortgage Definition

A mortgage is essentially a specialized loan designed to help you finance the purchase of your first home. Most homeowners can’t afford to pay in cash, so they apply for some extra help.  Whether you’re envisioning your dream home or a cozy starter property, a mortgage is the financial vehicle that can turn your aspirations into reality.

A mortgage is also referred to as a mortgage loan. It is an agreement between you (the borrower) and a mortgage lender to buy or refinance a home with money provided by the lender. This agreement gives lenders the legal rights to repossess a property if you fail to meet the terms of your mortgage, most commonly by not repaying the money you’ve borrowed plus interest.  

Who Gets a Mortgage? 

Most homeowners can’t afford to pay in cash so they seek a mortgage to help them purchase their home. There are some cases where it makes sense to have a mortgage on your home even though you have the money to pay it off. For example, investors sometimes mortgage properties to free up funds for other investments and to take advantage of tax deductions.

What’s The Difference Between A Loan and A Mortgage? 

The term “loan” can be used to describe any financial transaction where one party receives a lump sum and agrees to pay the money back. 

A mortgage is a type of loan that is used to finance property. Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process called foreclosure. 

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How Do I Get A Mortgage?

Before you get excited about going on showings and looking at houses with a realtor, you want to make sure you have all of your ducks in a row starting with getting a preapproval letter. 

1. Preapproval

It’s a good idea to get an initial approval letter from your mortgage lender before you start looking for homes. Getting preapproved upfront can tell you exactly how much you’ll qualify for, so you don’t fall in love with a home you can’t afford. 

Many lenders offer a home affordability calculator on their websites so you can get a sense of where you stand. This doesn’t hold much weight with sellers and real estate agents, so you will want to move forward with a Mortgage preapproval letter before you enlist with an agent. This letter will help you make your case when you submit an offer with an agent. 

2. Shop For Your Home and Make an Offer

This is the step where if you have not enlisted an agent yet, you are going to want to call us. Trying to find a home on your own can be time consuming and most buyers do not understand the market conditions or have the legal savvy to understand and prepare contracts. We can help you find the right home, negotiate the price and handle all of the paperwork associated with your offer and the transaction in general. 

3. Get Final Approval

Once your offer has been accepted, there is a bit more work to be done to finalize the sale and financing. 

At this point, your lender will verify all the details of the mortgage- including your income, employment and assets- if those details weren’t verified upfront. You will have to provide lots of detailed information such as taxes, bank statements, paystubs, etc so start compiling all of the info your lender needs. They’ll also need to verify the property details. This typically involves getting an appraisal to confirm the home’s value and you getting an inspection to evaluate the condition of the home. Your lender will also hire a title company to check the title of the home and make sure there are no issues that would prevent the sale or cause problems later. If this is a condo, your lender will also verify information with the HOA.

While they are working on this, you need to make sure that you understand the terms associated with your loan. Your lender will send you a loan estimate right in the beginning that outlines your rate and fees. If for any reason you are not comfortable with this, under the Colorado contract, you have the Loan Terms Deadline. This is a contingency that allows you to terminate the contract and receive your earnest money back if you are not satisfied with the terms of your loan, in your sole subjective discretion.

4. Close on Your Loan

Once your loan is fully approved, you’ll meet with your lender and real estate agent to close your loan and take ownership of the home. At closing, you’ll pay your down payment and closing costs and sign your mortgage papers. The title company and lender will then record all the applicable paperwork with the appropriate jurisdiction and the home officially becomes yours!

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Are there Different Types of Mortgages? 

There are so many different types of home loans. Each comes with different requirements, interest rates, and benefits. If you are just beginning the home buying process, you may be surprised to learn that there are two main categories of mortgages: conforming loans and non-conforming loans. CLICK HERE to learn more. 

In addition to conforming and non-conforming loans, you may have also heard of several government backed entities that issue or buy loans. There is Fannie Mae, Freddie Mac, FHA, USDA, and VA. There are also state backed entities and then there are banks and other lenders who hold loans in portfolios.

What’s in a Mortgage Payment?

This is a great question and one that needs to be addressed upfront. Your mortgage payment is the amount you pay every month toward your mortgage. Each monthly payment had four major parts: principal, interest, taxes, and insurance. CLICK HERE to learn more. 

What are the benefits of a Mortgage? 

Mortgages open the door to homeownership, allowing you to make the big move without shouldering the entire cost upfront. As you make mortgage payments, you’re not just paying bills – you’re building equity in your home, solidifying your stake in your property. Certain mortgage interest payments may be tax-deductible, offering potential financial perks to enhance your homebuying experience. 

Becoming a homeowner isn’t easy – and it’s certainly not cheap – but it is worth the effort. It’s important to take the time to familiarize yourself with what a mortgage is before you plunge into the market.  CLICK HERE for a list of our preferred local lenders to get started on your mortgage approval today!