What Is a Mortgage?
When it is time for you to buy some real estate, you will likely use a mortgage unless you have the cash on standby. A mortgage is a loan used to purchase or maintain real estate. Examples of real estate include a house, condo, and land. The following will walk through the mortgage process, how they work, and the different types of mortgages.
In order to get a mortgage, you will typically start the process through a lender who will ensure that you meet requirements such as a minimum credit score, proof of income, proof of employment, proof of funds for a down payment, and recent tax returns. Getting a mortgage is probably one of the most rigorous underwriting processes you will go through because a lender wants to make sure you can afford monthly payments. At the end of 2022, the median home price in the United States was $467,700, while the median estimated income in 2022 was $78,813.
The real estate itself is collateral for a mortgage since you are not purchasing the entire asset upfront. A mortgage has an interest rate, typically known as a mortgage rate that you pay (your mortgage primarily consists of interest payments for its beginning years). As of the end of January 2023, the national average mortgage rate in the United States is 6.43%, essentially double the start of January 2022 national average mortgage rate of 3.22%. A mortgage can either be a fixed rate (the interest rate stays the same over the term of the loan) or an adjustable rate (the interest rate can change periodically based on prevailing interest rates). As mentioned before, mortgage payments are monthly. Most mortgage terms are typically 30 or 15 years.
Different types of government-backed mortgage loans you can benefit from include the Federal Housing Administration (FHA) loans, United States Department of Agriculture (USDA) loans, and United Department of Veterans Affairs (VA) loans, many focused on supporting first-time homebuyers. There are also mortgage programs such as the Neighborhood Assistance Corporation of America (NACA) program and the Good Neighbor Next Door program, certified by the United States Department of Housing and Urban Development (HUD), to ensure first-time homebuyers can achieve their dream of home ownership.