Mortgage Basics

A mortgage is a long-term loan, typically spread over 15 or 30 years, used to purchase a home using the property as collateral. The lender will hold the title to the property or a lien on the title until the loan and interest have been repaid. Home loans are available from several types of lenders including thrift institutions, banks, mortgage companies and credit unions.

The most common types of mortgage loans are fixed-rate and adjustable-rate loans. However, there is a broad and sophisticated array of mortgage products from which to choose including a stated-income loan, bridge loan, zero-down loan or FHA loan. Each program specializes in meeting specific borrower needs.

Depending on the loan type, the lender verifies your income and debt obligations during the mortgage loan application process. The lender requires proof of your financial status and may verify your income and other assets by requesting pay stubs, tax returns, bank and investment account statements, and any other documentation that verifies your financial situation. The lender also will evaluate your credit history. This will help determine your debt-to-income ratio and buying power.

Lenders typically require the borrower to repay the loan via monthly payments, which are comprised of principle and interest, and in some cases property taxes and homeowners insurance. The total cost of a mortgage is determined by the loan amount, its amortization period (the term over which the loan is spread), and the interest rate paid on the loan.