How does a Mortgage Work When Buying A House
How does a Mortgage Work When Buying A House
New Investors updated 9 months ago

How does a Mortgage Work When Buying A House

Here is the basic information about what a mortgage is in real estate.


What is a Mortgage? defined a mortgage as a loan taken out to buy property or land. Most run for 25 years but the term can be shorter or longer. The loan is ‘secured’ against the value of your home until it’s paid off. If you can’t keep up your repayments the lender can repossess (take back) your home and sell it so they get their money back.



So, How does a mortgage work?

Investfourmore explained that many lenders, agents, and even wealth gurus make a mortgage sound really complicated, but they are pretty simple when you look at how they work. When you take out a mortgage you borrow money from a bank. You also pay interest on the money you borrow. A mortgage is set up so that you pay back part of the mortgage with every payment you make. The amount of money you pay off over time is calculated using an amortization schedule. The longer the mortgage term, the lower the payments will be because you pay off the balance over a longer period of time.


Including the important principles in the questions involving mortgage




  • Down payment? Lenders will require the buyer to pay a down payment when getting a loan. The down payment can vary from 3 percent (VA offers $0 down), 5%, 10%, or as much as 25% on investment properties.
  • Closing costs? Besides the down payment, the borrower will have closing costs as well. The closing costs consist of lenders fees, appraisals, pre-paid insurance, pre-paid interest, title insurance fees, and title company fees. 
  • Mortgage payment? The monthly payment is determined by an algorithm that takes into account the interest rate, the length of the loan, taxes, insurance, and mortgage insurance. 
  • Qualifying? The lender will decide how much you can qualify for. This does not mean you should try to max out that number! The lender is not concerned with how much money you can save, only if you can make the payments.

How is payment figured out in a mortgage?

In a nutshell, your payments every month is to pay the interest and part of the principal (amount of your loan). It is not easy to figure out the payment since it depends on how long the term is and the interest for example if the house is $200,000 your payment would be $1,755 a month at 10 percent interest on a 30-year loan. If the interest rate was 5 percent, the payment would be $1,074 a month. 

You need also to carefully note that Every month the amount of principal and interest paid will change. You will pay much more interest at the beginning of the mortgage than at the end. Tax rates can vary greatly by the state you are in. In some states, taxes and insurance might add $200 a month to your payment and in other states, $800 might be added to your payment. The Real Estate blog added.



What are the different types of mortgages?

Here are some, but not limited to the list of the types of mortgages you usually can avail

  1. Conventional
  2. FHA
  3. VA
  4. USDA
  5. Local and state programs
  6. Reverse mortgage

How can you qualify for a mortgage?

Basically, this part will be determined via debt to income ratio. For instance, a person that makes $500,000 a year may qualify more than the person that makes $100,000 a year but may qualify less if the former person has a lot of debt than the latter. 

There are many other factors to consider when qualifying for a loan.

  • You must have worked at the same job or in the same field for two years.
  • You must have decent credit (usually at least 620).
  • You cannot have had a short sale or bankruptcy recently.



Buying a home is one of the best investments that you can come up with. It is estimated that 66% of American's net worth. However, jumping to it right away won't be recommended, you must understand one important principle to play with your limited resources, and that is: Mortgage.


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