calgarymortgage (16)

What Is a Mortgage?

A mortgage is a type of loan that allows people to purchase homes and other real estate. The amount of the loan is based on the value of the property and its condition, and the borrower makes monthly payments to the lender.

A home mortgage is a popular way for first-time homeowners to buy their dream homes, and it’s an important step in the real estate financing process. Getting a mortgage can be an overwhelming task, but understanding the basics of the process will help make it easier to navigate.

Mortgage Details
A mortgage has four core components: the principal, interest, taxes and insurance. When you apply for a mortgage, the lender will collect these items as part of your application, and then divide them into separate payments you make each month.

The principal is the money you borrow, while the interest is the cost of borrowing it over time. The total interest and principal you pay over the life of your mortgage can be a significant sum, so it’s a good idea to make sure you can afford it.

Credit score and debt-to-income ratio:
Your credit history and credit score will be one of the most important factors in determining your loan’s interest rate. A credit score of 700 or higher will give you the best chance of qualifying for a lower interest rate.

Debt-to-income ratio (DTI): DTI is a calculation of how much of your income goes toward debt payments, such as rent, credit card bills, student loans and auto loans. Lenders typically prefer a DTI of 43% or less, but some loan programs offer a lower limit.

Mortgage insurance: A mortgage typically includes homeowner’s insurance as a way to protect your investment in the event that the home is damaged or destroyed by fire, storms or other natural disasters. Often, your lender will collect the insurance premiums and place them in an escrow account until they are due.

Closing costs and fees: These are upfront charges you’ll be charged when you buy a home, and they can vary based on the type of property involved. They can be paid as a lump sum at the time of closing or they can be rolled into your mortgage loan, paying them off with your monthly payments in exchange for a slightly lower interest rate.

Preapproval and prequalification:
A mortgage preapproval is a formal, professional assessment of your creditworthiness by a lender. It’s an important tool to help you find a home that fits your budget and lifestyle, and it can also provide you with an advantage over other buyers when you’re ready to make a formal offer on a house.

The process of obtaining a mortgage is lengthy and involves many steps on your end, so it’s a smart idea to get prepared early in the search. Gathering all the information you need — including proof of income, assets and debts — before you start looking can speed up the process.

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