Home Mortgage Basics | Mortgage Lenders Near Cleveland, Ohio

What is a Home Mortgage?

Let’s start with the most basic of basic details and define the term at the heart of our discussion. The word “mortgage” is one we hear pretty often, and something we may even say from time to time, but it doesn’t really sound like what it is. At least not to English ears. The word is said to stem from French legal terminology that was later adopted by British lawyers. It literally translates to mean “dead pledge,” meaning that the pledge ends, or dies, when the monetary obligation is fulfilled.

Another pledge we may take is applying for a loan, and a mortgage is very similar. It is essentially a loan that is extended by banks, mortgage companies, or other home mortgage lenders. In fact a mortgage is one of the most common forms of debt. But when we’re dealing with a home mortgage, the end of the loan doesn’t just mean that our debt is reconciled, it also means that we have a tangible, valuable asset in our possession–our home! 

While debt is never really a great thing, secured debt is generally given a pass because it has something solid behind it. At the outset, a borrower transfers the title of their home to a home mortgage lender, understanding that once the final loan payment is made, it will be transferred back to them. So what is a home mortgage? At its most basic, it’s a loan paired with an assurance that the borrower will own their property at the end of repayment. 

How a Home Mortgage Works

Since most of us can’t afford to buy a home outright, the mortgage process allows buyers to pay a much smaller sum upfront and a calculated amount of smaller payments over time. As with any loan, a home mortgage will carry an interest rate, but rates for home mortgages tend to be much lower than other forms of borrowing. This is thanks to the fact that the debt is secured by your home itself. In other words, if a mortgage is not paid, the lender can foreclose and seize the property. That’s not a happy thought, but it does explain why a lender is willing to take on risk at a lower interest rate. 

When it comes to mortgage interest rates, they can be either fixed or adjustable. Fixed rates stay stable from one pay period to another, while adjustable rates can change based on current home-buying rates. In general the interest owed is low for home mortgage loans, with it making up a very small percentage of the overall owed amount, on top of the actual monthly slice of the total mortgage. Mortgage payments are made monthly, and that payment is determined by the lender. It takes into account the total of the mortgage and then divides it across the years and months that a borrower will be paying.

As a borrower pays down the total amount they have borrowed, the principal–the total amount of their loan–shrinks. That means that interest, which is calculated based on the total remaining loan amount, continues to become lower. Monthly payments remain roughly the same, so over time the amount that is paid per month includes proportionally less interest and more principal.

Types of Mortgages

If you’ve never entered the Cleveland mortgage scene, hearing terms that commonly get thrown around could be intimidating. So we’re going to break things down and get into the need-to-know details that will set you up for success. 

Here are the three most common types of mortgages to look for:

• Conventional Loans: box standard type of home loan that generally abides by the rules set forth by major home mortgage lenders; mortgage insurance may be necessary for conventional loans paired with low down payments; fees are likely dependent on the buyer’s credit score
• FHA Loans: loans issued by private home mortgage lenders that are backed by the federal government; loosened requirements allow for (often first-time) home buyers with lower credit scores and down payments
• Specialty Loans: outside of the major two, loans are also available from home mortgage lenders who specialize in certain types of lending that have their own unique criteria, including: VA Loans, USDA Loans, Rehab Loans and Manufactured Home Loans

What Is Included in a Mortgage Payment?

It sounds singular, but one month’s mortgage payment actually divides out into several different payments. These can include an amount that goes to pay off the mortgage principal, which is the total amount that is borrowed and repaid to home mortgage lenders. Mortgage insurance protects home mortgage lenders against default on the part of the borrower, and may or may not be part of a given home loan. If an escrow account is associated with a home mortgage, then each monthly payment will likely also include small amounts that are put aside in escrow to pay property taxes and homeowners insurance policy premiums. Depending on where the purchased home is located, homeowners association fees or condo owners association fees may also be wrapped into monthly mortgage payments. Unlike the one time fees associated with closing on a house–e.g. down payment, appraisal, inspection, closing costs–these payments are made every month, for the life of the mortgage.

Example of Mortgage Terms

A mortgage term refers to the total length of time that you have to repay the loan. Terms generally fall into lengths of 10, 15, or 30 years, but 20- and 25-year terms may also be available. Since the total amount of the home purchased isn’t changing, monthly payments can be drastically different depending on the total length of the loan, with payments for shorter loans being naturally higher than longer-term loans. That said, what shorter-term loans lack in monthly payments they can often make up for when it comes to total interest paid to a home mortgage lender over the course of the loan. Since the sum is paid back more quickly, total interest paid is typically far less on shorter-term loans. 

Another factor to keep in mind is whether the interest rate is adjustable or fixed. Depending on your situation, one may be better than the other. Talk with a trusted home mortgage lender to understand the pros and cons of each option.

How to Get a Home Mortgage

If you’re considering purchasing a home but aren’t sure where to turn for a mortgage, you’ll typically want to work directly with a home mortgage lender. First you’ll need to submit an application and relevant personal information that outlines your financial history and current ability to repay a loan. You can opt for pre-approval or pre-qualification, where the bank or lending institution will review your total financial picture and approve you for a loan of a certain amount. Free pre-approval is a good way to know what your budget should be when looking for a home. Once you’ve found the home you want to purchase that is within the limits set by the preapproval process, you can then commit to the loan and work with the seller to settle on final terms of the sale. The home mortgage lender will then put a lien on the home, which will fall away once the mortgage is repaid in full. It’s generally best to work with a mortgage expert when you’re looking to buy to ensure that terms are met and you don’t miss out on any opportunities in the process.

Is a mortgage the same as a home loan?

Yes, and no. The terms are generally used interchangeably, and honestly they are nearly the same thing. Home loans are by definition used to purchase a home, while a mortgage may be used to purchase a home, property, or a commercial building, such as in the case of USDA loans. You could reason that the home loan is the money borrowed to purchase the home and property, whereas the mortgage is the legal documentation that proves your agreement with and obligation to the seller and home mortgage lender. Any way of borrowing money that involves putting the home up as collateral in the event of default will result in foreclosure if payments are not made, so in that way a home loan and mortgage are the same. 

What credit score do you need to buy a house?

Credit scores can mean higher or lower fees or payments but they can also affect eligibility for specific loans. For example an FHA loan may be attainable for individuals with a credit score as low as 500, whereas a conventional loan often requires a score in the 600s or higher. If your credit score is low and you’d like to learn how to raise it, working with purchase experts who specialize in home mortgage products is your best bet.

Experienced Home Mortgage Lenders in Cleveland, Ohio

As home purchasing experts, the team at Liberty Home Mortgage Corporation can help first-time and experienced home buyers alike to find a mortgage in Cleveland. Our team can help to pre-approve would-be buyers and can originate all sorts of mortgage loans for clients looking to finance a home purchase. We’re proud to be a home mortgage lender committed to customer satisfaction. Get in touch today to learn more about our available mortgage products or feel free to apply online. We’re ready to raise your home-buying standards and help you secure the home you’ve been dreaming of.