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    What is a Mortgage Loan?

    By Wasatch Peaks on October 1, 2020

    Has it been your dream to live in a home of your own? We’re here to walk you through the basics of a mortgage loan and to show you how to make your home dreams a reality!

    What is a Mortgage Loan?

    A mortgage is a home loan that enables you to buy a house, or property, without having all the cash up front. A lender will provide the money to purchase a home and you become the borrower. As a borrower, you will pay back the loan amount with set terms, only owning the house once the full loan balance has been paid off. There is a process set up for you to get a home loan from the lender.

    How Do I Qualify For a Loan?

    While it’s going to be tempting to jump straight into shopping for your new home, it’s important to hit the brakes to find out how much you can qualify for and what you can afford. You'll need to be prepared to get a loan before proceeding.

    Loan Limits

    As with all loans, there is a limit to the amount of money that a lender is willing to provide you through a mortgage loan. Your lender will determine this limit with a variety of factors, including your income, credit score, the money you pay upfront towards the home which is known as a down payment, and your debt-to-income (DTI) ratio which looks at how much debt you have in comparison to your income. These factors will need to be verified with a credit report and proper documentation. Your credit score will be used to determine the interest rate of your loan as well, with higher credit scores providing lower interest rates. Once you have gotten your loan qualification, it’s time to learn more about your monthly payment.

    Monthly Payment

    Your monthly mortgage loan payment covers a variety of things. Part of your payment goes toward the principal loan amount, which is the amount of money you borrowed to pay for your home. Another part of the payment will go toward paying off the interest, which will accrue on your principal loan balance at a specific rate. Taxes and insurance can also be included into this payment as well. Your lender can walk you through the payment breakdown in detail so you can know exactly where your money is going.

    While this may seem fairly straightforward with understanding your payment, you’ll still need to be cautious. It’s likely that you’ll qualify for a mortgage loan that is more than you can realistically afford. Review your budget, then compare the monthly payment for different loan amounts to decide what makes the most sense for your budget. It’s important to find something that is affordable for you, not just what you can qualify for.

    What Kinds of Loans Are There?

    There are different kinds of mortgage loans available, each to serve the different needs of the borrowers. Some offer smaller down payment options, while others provide more opportunities for those with lower credit scores. Our mortgage specialists can work with you to find the loan that best fits your situation. 

    Conventional Loan: This loan is simply any mortgage not insured by the federal or state government. This is a great option for those who have a high credit score and a down payment prepared. This loan can be used for an owner-occupied home, a second home, or even a rental property.

    FHA Loan: This is a mortgage loan that is insured by the Federal Housing Administration. This is especially helpful for those with lower credit scores or for those with a smaller down payment of at least 3.5% of the home value.

    Lot Loan: This is a mortgage that is used for and secured by land. This can be great if you aren’t ready to build yet but have found the perfect location.

    Construction Loan: This loan covers the cost of building a new home – whether that is done by yourself or through a contractor. It allows you to finance your short-term needs with a long-term mortgage.

    VA Loan: This loan is for Veterans and Military members. With Wasatch Peaks, we offer up to 100% financing of the home, with no mortgage insurance required.

    USDA: This loan is for rural properties. This is another loan where Wasatch Peaks offers up to 100% financing, with very low mortgage insurance.

    Mortgage Refinance: This is when you replace your current mortgage loan with a new loan. Refinancing your mortgage loan can help you to reduce your payment, lower your interest, or pay your loan off quicker.

    HELOC: A Home Equity Line of Credit (HELOC) is a revolving line of credit which allows you to borrow money against the equity of your home. This can be used for a variety of purposes, including home improvement. 

    Related: Can You Pay Your Mortgage with a Credit Card?

    Special Opportunities For First-Time Buyers

    If this is your first time buying a home or if you find you’ll need help making a home purchase financially feasible, there are many programs and grants in place to help you find your dream home. These include a HomeReady® Mortgage, which is a program that helps those with lower income or a limited down payment to buy a home. There’s also a Home Possible® Mortgage, which is specifically offered to first-time homebuyers and allows for a down payment as low as 3-5% with reduced mortgage insurance. Our mortgage specialists are happy to help you find any programs or grants available to help you get into your home.

    What Comes next?

    With your pre-qualification in hand, you’re ready to meet with your real estate agent and can start your house hunting until you find the perfect home for you! Once your offer has been accepted, you’ll need to get a home inspection to ensure the home is in good condition, and an appraisal so the lender can make sure the home value matches the loan value. After these two major steps are complete, you’ll be getting ready to close on your home and move in!

    Closing on your home means signing lots of paperwork, and you’ll need to bring your ID, proof of insurance on the home, and either a check or scheduled wire payment for the down payment. While it may feel like you’ve been signing forever, you’ll then receive the keys to your new home!

    If you’re ready to move forward with buying your dream home, look no further! Our mortgage specialists are here to help guide you through the mortgage process. For more information or to get started, visit your local Wasatch Peaks branch or give us a call at 801-627-8700.

    Wasatch Peaks

    Written by Wasatch Peaks