Financing Real Estate Purchase Through Mortgage Loans
Mortgage is the transfer of interest in property from borrowers to lenders for a consideration. Legally, mortgage can not be termed as a debt, as it is actually just a loan or lenders security for a debt. The term originated from French language. In most cases, mortgage is tied up with real estate only. In rare cases, it may be tied to other assets also.
When a person takes a mortgage, he/she has to pay interest and total repayment is amortized over a period of time. Since, mortgages are encumbrances over a period of time, are related to money transactions, they are now synonymous with a loan.
Mortgage lending is primary way to finance real estate everywhere. Most mortgages can be divided in two types, Fixed Rate Mortgages or Adjustable Rate Mortgages. Some loans may be a combination of two. In fixed rate mortgages, interest rate remains fixed over tenure, so a borrower knows what will his/her payments towards the loan. In adjustable road mortgages, rate varies as per market conditions and the monthly payments also will be changed. The term of these loans varies between 20 years and 30 years. Risk of change in interest rate is born by borrowers in adjustable rate mortgage, so the loans cost less then fixed rate loans.
If you are looking for a mortgage on your real estate purchase, consider the following before finalizing one,
- Fixed-rate annual percentage rate (these two are very different types of mortgage loans)
- ARM annual percentage rate
- Term period
- Margin requirements
- Initial payment without discount or with discount
- Interest rate caps
- Negative amortization
- Prepayment charges
- Initial fees and charges
When you apply for a mortgage, lender will require a set of documents from you. They will include,
- Tax returns (W-2s and 1040s) up to last three years.
- Current Check Stubs, for a period of about one month
- Sales Contract or Purchase agreement from seller
- Survey Report from local government agency
- Title certificate
- Application Fee (non-refundable)
- Lease / Rental Agreements
- Latest Credit Card Statements
- For Self-employed borrowers, latest financial statements of companies, which Borrower has 25% or more interest
- Names, account numbers and balances on all credit cards and other loan information
- Current rent agreement
- Copy of legal documents which may be relevant like divorce papers, bankruptcy papers etc
- Social Security Benefits letter, disability papers or retirement awards letter
All these documents you can ready before you approach the lender, as this is basic list which is required by almost all of them. If you have set of documents ready with you, it will save time and trouble later on. There are numerous lenders whom you can call for your mortgage requirements. There are numerous websites on internet which can help you choose a good lender for your real estate purchase. You can also compare cost of each loan offered by different lenders. A good credit rating will help you negotiate good loan and get you low cost mortgage for your purchase.