A mortgage is a loan used to purchase a home. If you are like most homebuyers and planning to borrow, there are many important factors you should understand before you even begin your home search.
To understand what a mortgage is, let’s use Lisa as an example. Lisa is a first-time homebuyer in northern Michigan, and went to the bank to be pre-approved for a mortgage (see How to Get a Mortgage for more details). After she was pre-approved, she found the perfect ranch home for sale in Antrim county. It has a beautifully decorated interior, is close to her family and work, and offers privacy in a heavily wooded neighborhood. The home is priced at $100,000, but Lisa does not have enough savings to pay the full – so she goes to the bank to take out a mortgage loan.
Lisa agrees with the bank to make an initial down payment of $20,000 (20% of the total price of the home), meaning she must borrow the remaining $80,000. The bank reviews Lisa’s credit history, income, and current debts, and offers her a 20-year fixed-rate mortgage with monthly payments of $500.
There are also costs associated with a mortgage. When Lisa signs the deal and makes the down payment, her new home becomes collateral, or a guarantee to the bank that she will repay the debt in full. In addition to the $80,000 principle, or lent amount, the bank will charge interest, so the total debt will actually exceed $80,000. If, at any point before the loan is full repaid, Lisa cannot make her monthly payments, the bank has legal authority to take possession of the house in a process called foreclosure.
In the next several sections, we will explore the details of a mortgage in more depth, including different types of mortgages, all the costs wrapped in a mortgage, and how to get a mortgage.
If you have any questions about mortgages, you can contact your local bank or mortgage lender.
If you are interested in hiring a professional realtor who can guide you through this process, Donna Gundle-Krieg loves working with people and would be happy to provide you with more information. She has many exciting listings available in great Antrim County locations, which you can view here. You can contact her at (231) 350-8507 or dokrieg@gmail.com to learn more.