How Do Mortgage Loans Work?

A mortgage, or property loan, is usually a long-term commitment. With the many different types of mortgages, it’s important to find the mortgage that’s right for you. The most popular term, or length of the loan, is 30 years.

Applying for and getting a mortgage can be a complicated process. Learning as much as you can about what to expect will make you more comfortable as your move forward.

When you sign a mortgage agreement, you agree to repay

• The principal – the actual amount you are borrowing, plus
• The interest – the percentage you pay over and above the amount financed.

You can choose a mortgage with an interest rate that is
Fixed – which remains the same for the entire term of the loan, or
Adjustable – often called an ARM, in which the interest rate varies during the life of the loan.

When you apply for a mortgage, typically you make a down payment – a certain percentage of the purchase price in cash, up front. The down payment represents your equity, or personal investment in the house.

A lender may charge a loan origination fee – a fee paid to the lender for processing a loan application. The origination fee is also known as points. A point is one percent of the amount you are financing. Usually, the more points you pay, the lower the interest rate.

Closing, or settlement, is the final step of the mortgage process. At the closing, your mortgage is initiated, and you take possession of your new home. Closing costs, which vary from state to state, may include:

Transfer Taxes: State or local tax, payable when title passes from one owner to another, and recording taxes.

Title Insurance: An examination of municipal or county records to determine the legal ownership of property, usually performed by a title company.

Survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Discount Points: 1 percent of the amount you are financing

Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser.

Attorney Fees

Document Preparation Fees

Apply for a First Mortgage

What Kind of Loan Can I Get?

How Much Home Can I Afford?

Rates

Protection Plans

Home Mortgage Disclosure Act Notice