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What is the Difference Between a Loan and a Mortgage?
What is the difference and similarities between Loan and Mortgage? How can you qualify for a mortgage? And what are the different types of mortgages?
A mortgage is a secured loan specifically related to real estate properties such as land or a house.
The biggest dream of an average American is to own a house. Some can actually be lucky to get the money to buy or build a house others might have to take a loan from a lender or any financial institution giving loans.
Saving a little cash from your income every month can help you raise money to buy a house, but if that is not working for you then Mortage will allow you to acquire land or a home.
In this article, we will see the process of buying a home, all the basics of a mortgage, the different types of loans, and all you need to do to have a house of your own. Before we go into how to achieve all we have listed, first let’s see what is a mortgage?
What is a Mortgage?
A mortgage, also known as mortgage also know as Mortgage loan, is a type of loan that is specifically taken to acquire a land or a home property with the intention of the borrower to pay back with interest after some time.
How long a mortgage run depends on the agreement reached with the lender. Some can run as long as 20 years or even more while some run less than 20 years. As said, it depends on the agreement reached with the lender. Factors such as your mortgage and how long it will run will determine your interest rate.
How does Mortgage Work?
It does not matter whether you want to know how to mortgage for first time buyers in the United States, UK, Greece, Turkey or Dubai, they all have something similar. You must agree to make a deposit of a certain percentage of the mortgage price while the lender does the rest of the work for you and thereafter you will pay back with interest within the time agreed upon to be paid.
The borrower is mandated to sign an agreement with the lender if he must take the mortgage loan. These agreements give the lender the legal right to again take over a property if you fail to honour the terms and agreements signed at the time of taking the mortgage loan.
In the UK and the United States, for example, you must make a deposit of at least 5% of the total price of the property you are going to acquire. In Australia, most lenders demand that you deposit at least a 20% upfront payment for the property you are taking a mortgage for. In UAE, mortgage deposit is mostly between 25% to 35% while the mortgage banks or lender finances the rest of the mortgage.
How Do You Qualify for a Mortgage Loan?
For you to qualify for a mortgage loan, you will need to some eligibility criteria. To qualify for a mortgage, you must have a stable and reliable source of income, a debt-to-income ratio of less than 50% and a good credit of at least 580 for FHA loans or 620 for a conventional loan.
Whether you are retired, self-employed or working for the government, the four basic criteria for getting a mortgage loan from any lender are your credit, equity, income and asset. You will have to go through the
Whether you have retired from your work, are self-employed or working for the Government, the four important criteria you must meet before getting a mortgage loan from any lender are your credit, equity, income and asset (Things that can be sold to replace pay back the loan you collected in case you fail to pay back). You will have to pass through the mortgage prequalification and preapproval stages before you can be approved to take the loan.
For you to know if you are actually qualified for a secured loan, you can compare and contrast mortgages and see your chance of getting approval with the selected lenders using some of the best mortgage comparison websites available. Using mortgage comparison websites to check your eligibility does not in any way affect your credit score.
What are the advantages of buying houses using a mortgage loan rather than paying in cash? There are cases where it makes sense to have a mortgage on your home even though you have the money to pay it off. For example, investors sometimes mortgage properties to free up funds for other investments. While some invest in gold, some invest in precious metals like silver and in the stock market, and quite a good number of others reinvest in their businesses.
Having explained clearly what a mortgage is, how it works and how to know if you are qualified for a secured loan like a mortgage, let’s take a look at the differences between a loan and a mortgage.
What’s the Difference Between a Loan and a Mortgage?
The word “loan” can be used to describe any financial transaction where one party receives a sum with an agreement to pay the money back with or without interest.
A mortgage is a loan type that is mainly used to support a project of buying a building. A mortgage is a loan type, but not all types of loans are referred to as mortgages.
Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the situation the borrower stops paying or cannot pay again. In the case of a mortgage, the collateral is the land or home being bought or build. If you stop payments on your mortgage, the one who is the lender can take over your home or land, in what is known as a foreclosure.
Types of Mortgage Loans
There are many types of mortgage loans and each one of them has different criteria to secure it, its benefits and interest rates.
When applying for a mortgage loan, here are the different types of mortgage loans you will come across. They will help to get very fast approval. Learning about them will help you make the right decision on taking the one required for your business.
Conventional loans are any type of loan that is supported or guaranteed by the government of a country. Once you meet certain requirements as required by the lending body, you automatically be qualified to have the loan
Conventional loans are a very popular choice for buyers. You can secure a conventional loan with as low as 3% down. If you deposit less than 20% for a conventional loan, you’ll normally be required to pay a monthly fee which is called private mortgage insurance, which protects the lender in case you failed to pay back the loan.
Veterans Affairs Loans
Veterans Affairs loans are for active-duty military personnel and veterans. Backed by the Department of Veterans Affairs, Veterans Affairs loans are a benefit of service for those who’ve served their counties. Veterans Affairs loans are a wonderful alternative because they let you buy a home with a 0% deposit and nothing like a private mortgage insurance is required.
USDA loans are only for homes in qualified rural areas only. To get a USDA loan, your household income should not be more than115% of the area’s median income. USDA loans are a good option for qualified borrowers because they allow you to buy a home with a 0% deposit. For some, the guaranteed fees required by the USDA program cost less than the FHA mortgage insurance premium.
FHA loans known as the Federal Housing Administration loans are a popular choice because they have low down payment and credit score requirements. You can get the FHA loan with a down payment as low as 3.5% and a credit score of just 580.
Since this type of loan is backed by the Federal Housing Administration; what it means is that the FHA will repay lenders if you fail to pay back. Knowing that the FHA will pay off the loan default to help to lower the risk lenders take. This is why the lenders don’t care if you have a credit score of 580 or more.
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