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Most homes purchased in the United States are bought using a mortgage. This is a type of secured loan, meaning the value of the asset is backed by the mortgage itself. Designed to make owning a home possible for those who do not have a large amount of money in the bank to do so outright, home loans like these can be a good investment. However, there are various types and if consumers do not take the time to compare options, they can be very confusing.
A mortgage is simply a home loan which is used to finance real estate transactions. As a secured loan, if the buyer defaults on the payments, the bank can foreclose on the loan, forcing the sale of it. To purchase real estate using these, consumers must ensure they have the qualifications, income and credit to do so. Generally, an interest rate, expressed as an Annual Percentage Rate, or APR, is applied to the loan as the fee paid to the bank for borrowing these funds.
There are numerous types of loans. A common version is the conventional one, which is financed through financial institutions including specialized lenders, national and local banks and credit unions. There are also FHA loans, which are those with backing from the federal government for individuals purchasing their first home. This type of security helps to reduce the risk to the lender. As a result, FHA loans tend to have lower interest rates, lower down payment requirements, easier credit requirements and other benefits. VA loans are another type, which are similar to FHA except that these are meant for veterans of the Armed Forces.
Another type of difference between mortgages has to do the interest paid. Fixed rate mortgages have the same interest rate applied to the loan the entire term. Adjustable rate mortgages have a rate that can vary throughout the term, depending on the fluctuations in the market.
To obtain a mortgage, consumers must apply with a bank or a private company / broker. They consider factors such as the applicant's income and credit history. Most consumers will need to make a down payment, which can range from three to 20 percent of the home's sale price.
Those people purchasing a home nearly always seek mortgages. They are often necessary simply because the cost of real estate is often too high for most average consumers to purchase outright. With a mortgage, a consumer can spread out the payments over a term of 15, 20, 30 or even 40 years. The consumer makes monthly payments, making it easier for him to buy an asset.
Most mortgages have low interest rates. In many cases, the monthly payments are affordable enough to make buying a new home possible for even those people who do not have high budgets. Ultimately, consumers must find a house that is within their price range of affordability. Shopping around for the right home loan can help to reduce costs and ensure the right type of mortgage is obtained.
There are 2 good ways to get several personalized mortgage quotes on the web (even if you have bad credit). You can either file an application directly on a broker's site or alternatively, get multiple competing offers by using an online quote service. Both ways are perfectly legitimate, but it's advised to work with a reliable, BBB accredited company or website for maximum confidence and security.