Learn all about mortgages
Most people dream of owning a home. But getting a considerable sum of money to buy or build one is an uphill task for many. Only a few can afford or pay upfront for a new home.
Fortunately, various financial lenders crafted a loan type to help people achieve their dream homes specifically. The loan type is known as a mortgage.
If you want to own a home and wonder where to start, this guide is for you. If you are also asking yourself, can you get a mortgage with bad credit see here. In this guide, you will learn everything you need to know about a mortgage.
Let's begin by enlightening you with the meaning of a mortgage.
What is a Mortgage?
A mortgage is a loan designed by credit unions, banks, and other financial lenders to people who want to buy a piece of property like a home or commercial building.
It entails an agreement between the mortgage lender and you (the borrower) to purchase a property without having all the required money upfront. According to the agreement, the property you have bought or built with the lender's money acts as collateral if you fail to pay.
Also, you need to pay back the borrowed money with interest. The lender will work out the amount you need to pay every month. After completing paying the entire loan, the property becomes yours legally.
For a better insight, here is how a mortgage works;
How It Works
First, you'll have to go to a reliable mortgage lender and explain your case. Then the lender will do an appraisal of you to determine if you qualify for the loan. Factors like a good credit score and a significant amount to pay as a deposit will work out great for you.
If you pass the lender's assessment, you proceed to the next step, where the lender accepts to lend you the money. You will then pay the agreed amount upfront as a deposit before the lender gives you the money.
Afterwards, you will agree with the mortgage lender on what interest to pay on the loan. Then the lender will work out how much you shall pay every month and when to start. You could pay the money each month for several years. It depends on your terms and the amount lent.
When the lender gives you the money to buy or build your property, you can move in or start building immediately. The property acts as the security of the loan. If you default paying, the mortgage lender repossesses the property and can sell it to recover the unpaid balance.
But if you finish paying the entire loan, the property becomes yours, where the lender hands over the property's deed to you.
If you have a bad credit score, you may feel like the chances of you owning a home are dead. But that's not the case. Here is an insight;
Can You Get a Mortgage With Bad Credit?
The answer is yes. Don't buy the rumors around that people with a bad credit history cannot access a mortgage. A poor credit score can indeed limit your options, but there's still hope. The market banking industry has many lenders who offer mortgages to people with bad credit scores.
Such credit mortgages become flexible with their lending terms to finance the following people to own properties;
- People with loan arrears
- Loan defaulters
- People who have gotten placed on debt management plans
- People who have suffered bankruptcy for the last six years
- Individual voluntary arrangements (IVAs)
- County Court Judgments (CCJs)
If you fall among the above categories and want to own a home or other property, your dream is valid. Look for such a lender and present your case. Though the lender may see you as a high-risk client and place higher interest on the amount loaned, you shall be assisted.
But the terms and interest rates may be adjusted and become better if you start working towards improving your credit score and don't default on your monthly mortgage payment. If you are still w
If you want a mortgage, know that various types are available. They include the following;
Types of Mortgages
- Fixed-Rate Mortgages (FRMs)
With FRMs, the interest rate is fixed. You pay the same amount as the interest rate every month until you clear the loan. Most mortgage lenders prefer to set a small interest rate per month but pay for an extended period. That's why most FRMs offer loans for 15, 20, or 30 years.
- Interest-Only Mortgages
As the name denotes, this kind of mortgage allows you to pay the interest only. It's a package given to those people who intend to sell the property after a short period. They use the money received from the sale to clear the principal amount. If there's a balance after paying the loan, it's theirs.
- Adjustable-Rate Mortgages (ARMs)
Unlike the FRMs, this type offers varying interests rates. The amount you pay as interest per month may change due to the fluctuating market rates. It could be more or less.
Initially, you pay a fixed interest rate per month for a few years. Then the amount starts to vary. That's why ARMs may be riskier than FRMs. The interest rates may continue increasing throughout the years of your loan term.
Conclusion
A mortgage is a game-changer. It makes peoples' dream of owning a home or any property comes true. If you are planning on having one, the above information will enlighten you.
