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A mortgage is a security interest in real property held by a lender as a security for a debt.
Home lenders who provide the funds for
the purchase, will, in turn, require that the buyers give the home as
“collateral” to the debt so creating a “secured loan.”
It should go without a saying that if you buy a home all cash there will be no need for security – you will own the home outright.
However a great deal of buyers will borrow some money to pay the seller – normally it will be the difference between the down payment and the total purchase price of the home. Nowadays, USDA or VA loans are the only ones that only home loans that can be 100% financed.
In any case, home loans are the most widely used method by which individuals or businesses purchase real estate and they it without the need to pay the full value up front from their own funds.
In other words if there will be some form of financing of the purchase, at closing, buyer will sign a promissory note for the amount borrowed and execute a mortgage to secure the debt.
Mortgage is a transfer of an interest in real estate property from the buyer to the mortgage lender.
You temporarily (For the duration of the loan or for as long as you still have any outstanding balance) transfers your “right of disposition:” Sale of the property. I cover it to a good extend on my page “Bundle Of Right” – Please click here to read more
The purpose of the note is to create a personal liability for payment on the part of the buyer.
It creates a lien on the financed property as security for the debt.
However there is the condition that this interest will be returned to the buyer/borrower when the terms of the loan have been satisfied [paid].
The word mortgage
comes from a “Law
French” term which is the combination of two words “mort” = dead
and “gage” = pledge.
The “pledge” is valid until the debt is “dead” = paid in full. Until
then your pledge is alive and you, the borrower, is responsible to make it
whole… Till the last “sweet” payment!
It is appropriate, once that the pledge only ends (dies) either when the obligation is fulfilled [paid] or if such payment is not fully the property is taken through foreclosure to satisfy any outstanding amount of the debt.
Please keep in mind that you can sell the property in any time before the end of the contract. If the value that you sell is greater than the amount you owe, you keep it – it all yours. However if there is a deficit [like in the case of lose of market value] you will need to bring that difference to the closing table.
“Law French” – for the neophytes, this is not a misspell – and it was no “law” either: It was a language spoken back in the Middle Ages when William The Conqueror invaded England.
Today it is almost non existent, except for special terms (notably in legal terms) it left imbedded in the English vocabulary…
By the way, in modern French language the word used is “Hypothèque.”
Nothing in common, hum? Go figure!
Loans can be made across the state line and indeed the country boundaries – which is the case of many commercial building loans.
However, nowadays it is an activity that has been increasingly regulated and any lender not registered in your state, will have to have a “local partner.” This additional “layer” is bound to make your loan cost more.
So, shop locally for your mortgage loan. Home loans are always for a long period – sometimes 30 years -- as a consequence, just a small percentage like .25% will mean a lot of money that you can save …or pay in the life of the loan.
There are many ways to attain a mortgage loans and,
accordingly, it takes many different names for it.
Until you become a “sophisticate investor,” here are the ones that you might need to know are:
- Conventional home loans are those that buyer
put a down payment of 20% or more of the purchase price.
If you can put this much down, you will avoid paying “mortgage insurance” which
is about 1.75% of the purchase price.
IM is paid up to certain point that you have reached paying 20% of the purchase price or the LTV (loan-to-value) of the home… thus there is no need to pay MI :-)
…And Here Are The Very Best Home Loans You Can Get
- FHA – Federal Housing Authority – backed loans will give you a loan with as little as 3.5% down. MI fee definitely will apply.
- VA (Veterans Administration) backed home loans allow military veterans to buy a home with zero down payment. No MI is required.
TIP: Most home loans can be paid in advance without prepayment penalties. When applying for your loan, insist on it: It will save money a lots of headaches down the road.
When you are shopping for a home loan, you may apply for several lenders and it will count just as one hit on your credit scores, as long as it is made in a period of a few weeks.
Credit bureaus grew to understand that there will be just one loan.
So when shopping for a home loan, please make as many applications you would feel necessary to get the best rates and terms, but be wise and do it within six or eight weeks.
It will count as one “hit” on your FICO® scores
Mortgage is a “voluntary lien” please click here to learn more about liens
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JC Fagundes, Associate Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.