The mortgage process can be confusing for first-time buyers.
Paying down your mortgage every month may feel no different than renting a home.
What's in this article?
You may be wondering, do you really own your house if you have a mortgage? How is it different from any other loan?
If you’ve ever heard an offhand comment that the bank or your mortgage lender actually owns your home instead of you, rest assured that this isn’t true.
Let’s take a look at how mortgages work, what it means to have a mortgage and own a home and how to get a mortgage.
What is a mortgage?
A mortgage is a loan used to purchase a home or other property.
The property is used as collateral for the loan. Collateral is simply loan security, which helps ensure you will make your monthly payments until the balance is fulfilled.
Auto loans work similarly, using the vehicle as collateral.
If you are unable to make your payments or meet the mortgage terms, you may face penalties.
Fortunately, this doesn’t happen often. Mortgage lenders and loan officers require their borrowers to meet certain lending requirements to make certain they can repay the loan in the first place.
If someday you find yourself having trouble repaying your mortgage loan, you and your lender can work together to find solutions and avoid potential difficulty.
General loan requirements include:
- Credit score limits
- Income and employment documentation
- Down payment amount
- Debt-to-income (DTI) ratio
The most common loan options for first-time buyers include conventional loans and FHA loans, each of which have their own requirements for borrowers.
Ready To Take Your Next Step?
Do you own a house if you have a mortgage?
When a couple or individual uses a mortgage loan to purchase a home, they own the property.
Your home is used as collateral for the mortgage, but as long as the mortgage terms are met, you are the owner of your home.
The mortgage lender has an interest in the property based on the documents you sign when you close on the loan.
Your closing agent will explain these documents throughout the closing process and state your legal obligations and rights and those of your lender.
They include the following:
Mortgage Note
The mortgage note is legal evidence of your mortgage and is a formal promise to repay the debt of your mortgage to the lender.
It explains the amount and terms of your loan and possible penalties that the lender can impose if you default on those terms.
Deed of Trust
The Deed of Trust lists your legal obligations and rights those of the lender. It also states the lender’s right to foreclose on the home if you default on the loan.
Other documents presented at closing
Other documents involved in the closing process include:
- Deed to transfer the title
- Title documents
- Mortgage loan application
- Escrow documents
- Closing disclosure
To ensure you fully understand the mortgage process and what to expect, it’s important to choose a lender with whom you’re comfortable.
The Compass Mortgage team treats you like family and is your partner and advocate throughout every step of the mortgage process. We offer our borrowers a simple, personalized loan process.
Can the lender or bank take your home?
If you have a mortgage loan, you could lose your home if you stop making monthly payments.
When you fail to meet the terms of your mortgage loan that were outlined at closing, the mortgage lender can foreclose on the loan.
This means the lender can seize your property and sell the home to cover the remaining balance.
Remember that your home is used as collateral to secure your mortgage loan. You agree at closing that the mortgage lender can legally repossess (take back) and sell your home if you fail to make timely payments.
However, before it gets to this point, you have options.
Your lender or loan officer is required to reach out to you to discuss any missed payments and possible solutions.
In fact, borrowers even have options once the foreclosure process has already begun.
The most common options to avoid foreclosure include the following:
- Mortgage forbearance
- Repayment plan
- Refinance to adjust your mortgage terms
Rest assured, your lender is still there to help you if you can’t make your monthly mortgage payments.
The most important thing to do is to reach out to your lender as soon as you begin to struggle to make payments, so they can help you find solutions sooner rather than later.
Do you need a mortgage to buy a house?
You don’t need a mortgage to buy a house, but most people cannot afford a home without one.
If you have the cash on hand, access to a private funding source or are renting to own, you don’t need a mortgage loan.
It’s up to each individual to determine which option is right for them and what they can comfortably afford.
If you own your home can you take out a mortgage on it?
If you own your home, either because you paid for it in cash or have repaid your mortgage loan balance, you can access the equity in your home with a new or second mortgage.
The most common ways to access the equity you have built into your home are with the following loan options:
- Cash-out refinance loan
- Home equity loan
- Home equity line of credit (HELOC)
Each of these options allows the borrower to access the equity in their home and repay what they use based on agreed-upon terms.
You’ll want to weigh your options carefully, as each option also involves costs of its own.
You can apply for these loans with your original lender or with a new lender.
What do you have to do to get a mortgage?
The first step in the mortgage process is applying for pre-approval.
Loan pre-approval helps you determine how much home you can afford and helps you be as prepared as possible to make an offer on a home.
Compass Mortgage offers Get Committed®, a program which provides future homeowners with a fully underwritten loan commitment and locks in their interest rate even before they find the property they want to buy.
A Get Committed loan commitment essentially has the power of a cash offer, showing the seller you’re fully approved financially and that your deal isn’t likely to fall through.
Additionally, Get Committed secures the financing for you, which means we can close on your loan in as little as 15 days.
If you’re ready to start the mortgage process with pre-approval for a loan, apply now with Compass Mortgage or contact us with any questions about your next steps.
We look forward to helping you secure the most affordable loan option for your new home!
Photo by RODNAE Productions