It's part of the ultimate American Dream: Owning your own home.
Since most of us can't just go out and pay cash in full for any house
we want though, we usually get a mortgage instead.
Technically a mortgage is a loan, however unlike standard loans or
lines of credit, the mortgage is secured by the house you buy. In
other words, that house you're taking the mortgage out for is used
as collateral against the loan. So if you default on your payments,
the lender can take the house away from you and sell it to someone
else.
You don't actually own the home when you buy it through a
mortgage arrangement. As time goes by however, the payments
you make on the mortgage will give you partial ownership in the
home. And if you pay for the entire length of the mortgage of course,
you'll own the home in full at the end.
There are some general basic steps you should take to get a
mortgage, so we'll look at those here.
1. Your credit history is important. Most mortgages are secured
through banks and other financial institutions, and your credit
history is critical to being approved for a mortgage. Now days it is
possible to find mortgage lenders who will accept tarnished, or
even bad credit, but these bad credit mortgage lenders usually
charge much higher interest rates, and getting the mortgage is still
harder to do.
The bank will look at your overall credit score itself, as well as your
payment history, how many outstanding debts you have, what the
total amount of your outstanding debts are, what your income is and
how stable that has been, plus what your income to debt ratio is.
So having a good credit score is only part of the battle. You need to
be sure you've had a solid steady work history - the longer the better
- and if you have outstanding debts such as credit card bills and
revolving store accounts, you might want to pay those down or
completely off before applying for your mortgage.
2. Get pre-qualified. This isn't required, but it can be quite helpful to
get pre-qualified for a mortgage before you even start looking at
houses. To pre-qualify for a mortgage means you go to your bank or
financial institution, and fill out all the standard mortgage
paperwork. They'll then tell you how much of a mortgage they're
willing to give you.
Armed with this information, you'll be able to show your real estate
agent what you're qualified for, and only look at those houses which
fall into the appropriate price range. Getting pre-qualified for a
mortgage also helps you close the deal much more quickly when
you find the house you want to buy.
3. Shop around. There are almost as many types of mortgages as
there are houses to choose from, and the same can almost be said
for lenders. Thanks to the Internet, you're not restricted to applying
for mortgages at your local banks anymore. There are thousands of
reputable lenders online who make getting a mortgage easy. As
you review each lender you'll find there are very competitive interest
rates, and there are many types of financing available too.
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