If you’re just getting started learning about mortgages, you might be surprised at how many new financial topics you need to understand. To that end, here’s a list of some common mortgage concepts that will likely come in handy as you begin the home-buying process. Keep reading to get a sense of the mortgage basics you need to know before you start shopping for a home loan.
Key mortgage terms
- Closing costs: Costs collected at closing that are associated with transferring ownership of the property from one person to another.
- Down payment: The amount of money you pay for the property upfront, usually out of your own savings.
- Interest: Charges imposed by the lender in exchange for the privilege of borrowing money
- Loan term: The length of time it will take to pay back the loan in full.
- Principal loan amount: The amount that you borrow to purchase the home, which is usually the difference between your down payment and the home’s purchase price.
Common types of mortgages
- Conventional loans: Conventional loans are offered by nearly every mortgage lender. Unlike the other loans on this list, they are not insured by any government agency, which means they come with stricter qualifying requirements. However, in exchange, they often offer more flexible loan terms.
- FHA loans: FHA loans are insured by the Federal Housing Administration (FHA). They offer lower credit scores and down payment requirements than most conventional mortgages.
- VA loans: VA loans are meant for veterans, active-duty service members, and their spouses. These loans are backed by the Department of Veterans Affairs (VA) and have no minimum credit score or down payment requirements.
- USDA loans: USDA loans are geared toward lower-income home-buyers who want to live in rural areas. They are guaranteed by the United States Department of Agriculture (USDA).
Mortgage basics FAQ
Why do home buyers use mortgages?
Put simply, mortgages make buying a home accessible to a much larger pool of homeowners. Not many people have hundreds of thousands of dollars sitting around in a savings account. However, most people are able to manage to pay a smaller amount upfront and finance the rest of the home’s purchase price over time.
If I get a mortgage, will I still own my home?
For the most part yes, you’ll own your home. However, some third parties may have rights to it under certain circumstances. For example, if you decide to stop making your mortgage payments, the lender has the right to foreclose on the property. But, that won’t happen as long as you hold up your end of the agreement.
Do I have to keep my mortgage for the entire loan term?
No. Most homeowners sell or refinance their mortgages before their original loan term ends. You just need to pay the original home loan off in full before the lien can be removed from your property. If you sell, you’ll use proceeds from the sale to pay off the loan. If you refinance, you’ll use a new loan to pay off your old one.
Have more questions?
If you have more questions about mortgages and how they work, give Premier Nationwide Lending a call today! One of our experienced lenders would be happy to help you learn more about the mortgage process.
Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.