A Financial Institution makes a mortgage loan to a person who aspires to acquire a house, allowing him to cover the purchase expenses. The guarantee of said loan is the ownership of the property. Many families do not have the sum of money that requires the purchase of a house, so the loan provides the necessary amount.
After the loan is approved, the monthly installment payments by the applicant can last several years or decades, depending on the conditions under which those Who requested the loan are due. Applying for a mortgage loan to purchase your home is considered the most changing and transcendental decision in every individual’s life.
If it is the first time buying a real estate property, some basic mortgage loan steps can be confusing. For example, What does obtaining a mortgage loan approval from a financial institution take? How is the loan paid? This article explains all the information you need to consider below.
Mainly, we will clarify the following basic terms: When you apply for a loan to buy real estate, you should know the main words.
- Initial Amount:
This is the sum of money you give in advance to show the financial entity that you are interested in the business. The most advisable thing is to collect 20% of the price of the house (for example, $40,000 for a home of $200,000). The initial amount will allow you to avoid an additional charge called PMI (Private Mortgage Insurance). However, suppose you do not have the opportunity to have the whole initial amount. In that case, lenders accept less than initial amounts, such as 10%, 5%, or up to 0%, to be advanced based on certain circumstances. Also, loans include the payment of the closing costs of the business and additional fees that the processing of the credit entails. - Principal:
It is the amount of money you are borrowing and must pay, which translates into the cost of the house, deducting the amount of the initial, for example, from a home that costs $200,000 or $40,000 of initial, the principal loan. It would be $160,000.
- Interest rate:
The financial entities do not lend the money without any interest in return. They do it to obtain money for this service since you must pay the funds provided for the purchase of the house plus interest, which is a percentage of the amount financed. The interest rate varies according to the loan entity and your circumstances.
Loans are paid gradually in the form of a monthly payment, which combines the expense of the principal amount plus interest.
Another amount that You must ensure in the mortgage payment is the amount to pay property taxes and insurance premiums. These funds are set separately in a rigorous account that the loan entity will use to pay these bills as they are present.
When to Apply for a Mortgage Loan?
It would be best to have the loan application ready before you start searching for the house since many sellers are interested in knowing that you are pre-approved for a loan and that a financial entity will secure their money for the home sale. We assure you that the pre-approval of the credit is not as fun as the search for the house, but it is more important.
In this pre-approval process, the financial entity will review your credit record, reports, income, expense summary, tax payments, and other aspects of your financial profile. This process has two purposes: first, it will let you know the maximum price you can pay for a house, and second, and more importantly, the pre-approval shows sellers that your intentions are profound regarding business, which is particularly crucial in a highly competitive market.
You must know the difference between pre-approval and prequalification. At first sight, the prequalification of a mortgage loan implies the ability of the lender to obtain a loan without the paperwork to back it up. For example, prequalification is an easy and fast way to get an approximate amount of up to how much you can aspire to pay without guaranteeing that you will effectively obtain the loan from a said financial entity. So do not let expectations excite you unless you are pre-approved.
Another easy first step is to enter your information into a system of calculating economic accessibility for home purchases, which will give you an idea of how much your loan can be.
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