What Exactly Is a Mortgage?
When you are exploring various mortgage lenders and the home loan products they offer, you may encounter specific phrases you are unfamiliar with. So, what exactly is a mortgage? Well, a mortgage is described as a loan product that finances the purchase of a home. However, mortgages do differ from home loan agreements.
The purpose of a mortgage is to finance the purchase of a home. Your house will act as collateral in the case that you fail to repay your loan in full at any time during the term. Once you have successfully become a homeowner, you have the potential of taking out a home loan against your house to finance renovations, upgrades, and even education for your children. As you can see, mortgages differ from home loans.
Before you go through the process of applying for a home loan, you will need to determine how much a mortgage lender is willing to lend you, the cost of your potential new home, and what your financial picture currently looks like. These three factors play a big role in total loan finance.
When you apply for your desired home loan product, your mortgage lender will thoroughly review your application and financial documents to gain a better understanding of your financial status, credit history, and existing debts. These three factors will help your mortgage lender determine your borrowing power and overall risk factor as a borrower. Borrowing power refers to the amount of money your lender approves you to borrow based on your capability of repaying the funds that you have borrowed.