What Is a Mortgage?
Any loan sanctioned in return for any fixed (immovable) property is called a mortgage loan. The respective loan has some collateral attached to the bond, which mentions that any default in payment of the loan on time may result in the forfeiture of the asset attached to it. The borrower can take a mortgage from banks as well as from mortgage brokers. The borrower has to repay the amount lent with the rate of interest as per the agreement.
In simple words, the mortgage is a type of finance that provides the borrower with funds and the lender with security (in the form of any property or asset) that is worth more than the value of money sanctioned as a loan. Mortgage loans are secured in nature and that is why they are preferred over personal loans by the lenders. Here the fund of the lender is never at risk.
Ownership of the collateral (in case of a mortgage) is transferred to the concerned people by agreeing that ownership will again be retrieved on successful timely payment of the principal amount and the interest agreed upon.
Types of Mortgages
A few common types of mortgages may include:
- Big or jumbo mortgages
- Primary or conventional ones
- Stable or fixed-rate mortgages
- Government-approved or insured mortgages
- Reverse mortgage loan
- ARM or adjustable mortgage loan
Though there are numerous types of mortgages the above mentioned are a few basic mortgage loan types.
Mortgage payments normally include four basic parts. The payment by the borrower is usually made on monthly based payments. The four stages of payments may include the payment of the principal amount, the payment of taxes and interest, and the payment of insurance dues.
In the present scenario, the type of loan can be applied both online and offline. The steps involved from beginning till sanction of mortgage loans are summed up below in easy-to-understand points.
Steps Involved in the Mortgage Process
1. Pre-assigned approval
The facility of pre-sanctioned loans saves time for both the involved parties and makes the dealings secure in terms of the availability of funds. Pre-approvals are not time-consuming. If you don’t want to face any sort of financial defaults in dealings or want to raise the trust of the seller in buying any property, then these pre-approvals are sound positive. Also, it is a clear signal to the seller about the seriousness of the buyer.
2. Credit and capacity
Assessment of the borrower’s ability to pay back the demanded loan is surely considered by the lenders. The mortgage loan involves collateral that is normally more in monetary value than the mortgage loan applied for. This enhances the confidence of the lender in the borrower and the mortgage loan becomes secured. Looking for the borrower’s capacity of repayment and his credentials sounds important from the lenders’ point of view. This helps you prove your credibility in terms of mortgages in the opinions of lenders.
3. Organizing documents
Before the approval of a mortgage, it is necessary to organize and arrange the necessary documents needed for filling mortgage loans. It is better to be prepared well in advance to make the process less complicated and to save time. This protects you from stress and hassles.
4. Get accurate pricing info
It is compulsory to compare things and mortgage loan facilities online to get the best possible quotes. One may also take the help of agents and agencies to help and guide them during the process. These agents have full market information and can guide the client better by the need and purpose of opting for a mortgage.
5. Applying for a mortgage
To apply for the mortgage loans a few documents are needed and if they are organized and arranged in advance then the experience of filing becomes simple. Once the appropriate documentation is done the respective and assigned loan can investigate the documents needed and not needed. The documents may include the verification about the job and employee of the applicant, his salary details, the assets (tangible and intangible) and property, etc. owned by the applicant, his credit and debit details in recent years, financial defaults (if any), mortgage loan estimated amount, etc.
6. File opening procedure
Once the information about the borrower is gathered, the same is again reviewed and a loan file is assembled and the verification process begins.
7. Decision takers (underwriter officer)
Once every document is reviewed the assigned officer known as the underwriter takes the decision of acceptance or rejection of the mortgage loan applied for. Sometimes the loans are approved under specifications or assigned conditions.
8. Interest rate
In between the process of opening and closing of the file the sought-out interest rate is locked for the loan rendered. Also, the legal contract between the parties mentions the interest rate.
9. Closing the process
Once everything is accomplished and done the closing meeting takes place where the party or the company is handed over with the closing disclosure which is mandatory to match the loan estimate. After the three-day review period, a closing meeting is held where you may be asked to hand over some of your legal identity proofs and when all goes well the borrower is provided with the complete records accompanied with funds.
The approval of such types of loans may involve a tenure ranging from 30 days or a month to a few months depending upon various conditions like the market statistics and one’s situation.
Various banks and lenders may have different criteria for the approval, sanction, and renewal of the mortgage.
How is a Mortgage Loan Different from other Types of Loans?
- The first and foremost reason is that a mortgage loan is a secured loan while personal loans are unsecured loans.
- In mortgage loans, the property owned by the borrower is transferred in favor of the lender during the tenure or the final payment of the same. However, the other types of loans are about the relationship between borrower and lender.
- The mortgage loan usually includes larger amounts of money as they are secured at the end. But other personal types of loans may not include such huge amounts as they are not secured.
Frequently Asked Questions
Q1. How can one make the best choice of any mortgage center?
Ans. A healthy credit score in shape, better reputation of payment of debts in the market, the assessment of your requirements, and complete paperwork helps the borrower to choose the best mortgage center.
Q2. How can one increase the chances of approval of the same?
Ans. Making the larger payments for the previous debts, paying off the existing debts, Ruben the credit score, opting for a lower mortgage rate, to increase the income are some points that add to your chance of approval.
Q3. Is a private company lender better than banks and other government institutions?
Ans. The private companies and services offer mortgage loans with a much better and easy e process of streamlining than a bank. They also provide the services of mortgage brokers and lenders and the funds or loan amount is transferred directly. So such companies or lenders provide the same much quicker with a simple process.
Q4. What percentage of mortgage is sanctioned against the value of security?
Ans. Generally, the banks sanction 85percent of the value of collateral security with an additional payment of a rate of interest that ranges from 12-15percent.
Q5. Is it worth and wise to opt for these types of loans?
Ans. If one is opting for the purchase of any home for property, getting a mortgage is the best option because personal loans have much smaller repayment terms and tenure and higher rates of interest in comparison to mortgage loans.
Q6. Is a mortgage good or bad?
Ans. Low rates of interest make mortgage loans attractive for potential buyers. It is also easy to get these due to their nature of collateral involvement. This is even having flexible tenure and repayments become easy.
The mortgage loan has common reasons for disapproval just like poor credit score, bad income- debt ratio, and default in payment during the recent period, etc.
Always remember that it is your credit score and behavior of borrowing that affect your chances of mortgage approval. The higher score is always in your favor of getting sanctioned for the same.
It is better to clear most of the debts before applying for a mortgage loan. This serves as an attempt to have a favorable positive outlook of the lender and will surely affect the decision of the authority.