Mortgages

Most people who are looking to buy a new home need a mortgage. A mortgage is like a loan to purchase real estate. The mortgage process can be confusing for first-time homebuyers. But understanding the mortgage process, how to get approved, and what to do if the bank denies your application is important.

Real estate and financing laws differ in every state. It’s important to talk to a mortgage lawyer in your area for specific legal advice about mortgages and financing for your home purchase.

What Is a Mortgage?

A mortgage is a real estate purchase agreement between the borrower and the lender. The lender puts up the money to buy the piece of real property, and you have to make payments based on the mortgage agreement. Generally, the lender keeps a security interest in the property. That means they have the right to take back the mortgaged property if you don’t make payments.

The Types of Mortgages and Mortgage Terms

The two most common types of mortgages are fixed-rate and adjustable-rate mortgages. A fixed-rate mortgage has a set interest rate and predictable monthly payment amounts for the entire duration of the loan. An adjustable-rate mortgage (ARM) pays an interest rate based on a formula and changing market conditions over time. The ARM interest may be at a lower rate initially but could rise based on higher interest rates.

Other loan options include Federal Housing Administration (FHA) loans for qualifying people and VA loans for qualifying veterans.

There are many important mortgage and real estate terms that you should understand. When dealing with a mortgage broker, you should consider:

• The amount of the loan
• The annual percentage rate (APR) of the loan
• Closing costs
• Origination fee and lender’s fees and points
• Whether the mortgage is a fixed or adjustable rate
• Penalties, including prepayment penalties

How Can I Get a Mortgage?

The mortgage process begins with a loan application. You apply for a loan through a bank, credit union, or financial institution. The lender looks at your financial position and the property value. Factors the lender may consider include:

• Your down payment amount
• Your employment status and income
• Your current assets
• Your outstanding debts, including student loans
• Your credit score

The lender will also look at the value of the property. If the lender finds that you qualify, they’ll issue a loan commitment. The loan commitment includes the loan terms. If you agree, you will get the amount to purchase the property under the repayment terms of the mortgage.

Do I Need a Mortgage To Buy a House?

You can buy a house without a mortgage if you can secure other financing. If you have the cash on hand, you can purchase a property for the full amount without having to go through a bank. Some people can get private loans. In some cases, others can make a home purchase directly from the owner with owner financing.

Making Monthly Mortgage Payments

Every month, you make mortgage payments according to the loan terms. For a fixed-rate mortgage, the amount should not change significantly month to month for the term of the loan. But most mortgage payments also include an amount to pay for property taxes and homeowners insurance premiums in an escrow account. Property tax and mortgage insurance can change over time and change your monthly payments and the total amount.

A mortgage calculator can help you estimate monthly payments based on the loan amount and interest rate.

What If I Have Trouble Paying My Mortgage?

If you’re having trouble paying your mortgage, you may be at risk of foreclosure. Foreclosure is the process where the lender forces the sale of the property when a borrower stops making payments. After foreclosure, the homeowner may lose the home equity they’ve built up in the property. Federal and state laws control the foreclosure process. Each state has specific conditions for the rights and obligations of the borrower and the lender in foreclosure.

For example, in California, a person is in default after 90 days from the lender recording the Notice of Default. However, the entire foreclosure process may take four months or longer. After the lender files a Notice of Default with the county, borrowers may still be able to keep the house if they pay the lender the balance of the missed payments and fees during the 90-day period.

Federal mortgage laws require lenders to make attempts to contact borrowers to talk about options, including loan modifications or repayment plans. In some states, banking laws require mortgage lenders to provide a single point of contact to communicate loan modification information and other loss mitigation options.

Can I Pay Off My Mortgage Early?

Generally, you can pay off your mortgage earlier than the life of the loan. Most mortgages allow for early repayment without additional fees. However, some mortgages may have a prepayment penalty. Before paying off your mortgage, talk to a real estate law firm about the disclosures and terms of your mortgage agreement.

Some borrowers make regular additional payments to pay down the principal quicker. Common options include making an extra payment every year or bi-weekly payments instead of monthly payments. If you just want to lower your interest rate, you may also be able to refinance at a lower rate to save on the home loan interest.

How Can a Real Estate Lawyer Help?

If you have any questions about how mortgages work or the mortgage process, a real estate attorney can explain the process and help you with financing questions. You should also contact a real estate lawyer who works with mortgages if you are at risk of losing your home to foreclosure. A lawyer can protect your rights against banks and lenders who know the law better than you do.