Do you need financing for buying a home? You can take out a mortgage loan by keeping the same property as the security for the borrowed amount. Read on to know about the basics of mortgage loans. The knowledge will help you to take out a suitable home loan to purchase a property.

Mortgage – Parties involved in the deal

Generally, two types of parties are involved in a mortgage loan transaction; they are – the lender (mortgagee), who offers the loan and the borrower (mortgagor). You can take out a home loan from banks, mortgage companies, credit unions and also portfolio lenders. You can also obtain mortgage loans from private lenders, too. It is advisable that you shop for loans and take out the one that best suits your financial condition.

Mortgage loan – Types of rates

Mortgage rates can be broadly categorized into FRM and ARM, which are discussed below.

FRM – In an FRM (Fixed rate Mortgage), the interest rates usually remain same for the entire loan term.

ARM – In an ARM (Adjustable Rate Mortgage), the rate of interest may periodically increase or decrease depending on the interest rate measurement (index) that your lender had chosen.

Mortgage – How to qualify for it

You need to satisfy certain factors in order to qualify for a home loan. Whenever you apply for mortgage loans, the lenders judge you by 4 C’s of credit as listed below.

1. Credit history
2. Capacity to repay the borrowed amount
3. Capital or down payment
4. Collateral (the guarantee of your loan amount)

Based on these factors, the lenders decide whether or not to offer you the loan and whether or not you’ll get favorable terms and conditions on the home loan.

Mortgage – Documents required

A borrower has to produce certain documents in order to take out mortgage loans. The required documents are listed below.

• Your address proof
• Your income proof
• Your SSN (Social Security Number)
• Your paystubs for the past 2 years
• Your W-2 forms for the past 2 years
• Recent statements of your deposit amounts, stocks and bonds

Mortgage payment – Its components

The monthly payments on mortgage loans are usually dependent on 4 factors, which are referred to as PITI (Principal, Interest, Tax and Insurance). They are discussed below.

• Principal – The amount that you actually borrow from a lender for buying a property. In other words, it is the home purchase price after you make the down payment.

• Interest – Amount charged by a lender for offering you the loan. It is a percentage of the borrowed amount.

• Tax – You need to pay a property tax, which varies from one state to another. It is often paid as a part of your monthly home loan payments.

• Insurance – You also need to pay premium for your insurance (Homeowners insurance) that protects your property against theft, damage, fire, etc. Along with it, you may also need to pay premium for PMI (Private Mortgage Insurance) if you make less than 20% down payment on the home.

You may have several questions about mortgage loans, especially if you’re taking out a home loan for the first time. Apart from asking your mortgage lender, you can take help of online forums to clarify your doubts. When you post your queries in online forums, experienced persons will answer your questions. It will help you to select a favorable mortgage that best suits your financial condition so that you’re able to make your monthly home loan payments right on time.