What Is a Mortgage? Everything You Need to Know Before Buying a Home
Published on: 18 Apr 2025
A mortgage is a loan, a debt instrument used to purchase or maintain a home, land, or any other type of property. The borrower agrees to pay the lender back over time, mostly in regular payments divided into interest. The property becomes collateral in such conditions to secure the loan.
A mortgagor should apply and ensure they meet certain requirements, such as minimum credit scores and down payments. When both the borrower and lender come to this agreement, the lender has the right to seize or sell a borrower's property if the loan is not paid. Before reaching the closing phase, applications go through the underwriting process. Underwriting is the process by which the granter decides whether an applicant is creditworthy and should receive a loan or not.
There are many types of mortgages, and anyone can choose keeping needs, wants, and credit scores. Using it, one can purchase a home immediately without paying the full price.
How do they work?
Many businesses, large or small corporations, and individuals use it to their advantage and buy real estate without paying the entire price to own the property. The mortgagor repays the loan and interest over years until they own the property completely without any debt. The regular payment amount will stay as it is, but the claim will be paid over the years. Typically the terms are for 13 or 15 years.
The process
The process begins when the buyer applies for a mortgage; the granter can ask for evidence to see if the buyer can repay the loan. This may include bank and investment statements, credit reports, tax returns, and proof of employment.
If the application is approved, the lender will offer a loan of a specific amount and at a fixed interest rate. Homebuyers can apply after choosing a property to buy, or if they are still looking for one, a process known as pre-approval comes into the context. Being pre-approved makes it even easier for the buyer.
After closing the deal, the buyer and seller agree on the terms and conditions of their agreement. While completing the deal, the down payment is to be paid to the lender. The ownership gets transferred to the buyer, who receives an agreed-upon amount from the lender. The buyers sign any remaining documents.
Types of Mortgages
There are many types; the most common types are 30-year and 15-year fixed-rate mortgages. Short may be as short as five years, while they can be as long as 50 or longer. Here are some examples of the most popular types of mortgage loans.
The Transfer of Property Act is one of India's real estate laws. According to the act, there are six major types of mortgages in India.
Comparing organisations that provide mortgages
Banks, savings and loan associations, and credit unions were the only sources back then, but today we have various options like non-banker lenders. When looking for it, you can try an online calculator, which can help you compare monthly payments based on rough details like type, interest rate, and how large a down payment is; the calculator will give you an estimation.
The servicer may set up an escrow account to pay local property taxes, homeowner insurance premiums, and other expenses. Those costs are to be added to a monthly payment.
Also, remember that if you pay less than 20% down payment when you take out a homeowner’s loan, your lender may require you to purchase PMI, private insurance, which becomes another added monthly cost.
Why do people need mortgages?
It allows individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The value of the property safeguards the loan. The cost of a home is greater than the amount of money that most houses save.
Can anybody get a mortgage?
Lenders follow a set of principles and a process to approve prospective borrowers through a process of application and underwriting process.Individuals with significant assets and income that can reasonably support the value of a home are eligible for home loans. Credit score plays a vital role in this process; the credit score is evaluated when making the decision. The interest rate also varies depending on various factors.
There are many sources for you to get a homeowner's loan and many companies specializing only in offering home loans. If not, you can also opt for a mortgage broker.
How many mortgages can one have on a home?
A primary homeowner’s loan is mostly issued before they allow for a second one. The additional deed is known as a home equity loan. Most mortgagees don't provide for a second one backed by the same property. As long as you have equity, you can take as many junior loans as possible.
We hope this blog was helpful to you! To learn more about real estate, follow EstateMint blogs.
What is a mortgage?
- Simple Mortgage
- Usufructuary mortgage
- English mortgage
- Mortgage by conditional sale
- Anomalous mortgage
- Mortgage by the sale of the title deed
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