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*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.

For many, owning a home is part of the American dream. For most homeowners in America, getting a mortgage is just one of the steps it takes to get there.

If you’re contemplating homeownership and wondering how to get started, you’ve come to the right place. Here, we’ll cover all the mortgage basics, including loan types, mortgage lingo, the home buying process, and more.

A Simple Definition Of A Mortgage

Before we dive in, let’s talk about some mortgage basics. First, what does the word “mortgage” even mean?

A simple definition of a mortgage is a type of loan you can use to buy or refinance a home. Mortgages are also referred to as “mortgage loans.” Mortgages are a way to buy a home without having all the cash upfront.

Who Gets A Mortgage?

Most people who buy a home do so with a mortgage. A mortgage is a necessity if you can’t pay the full cost of a home out of pocket.

There are some cases where it makes sense to have a mortgage on your home even though you have the money to pay it off. For example, investors sometimes mortgage properties to free up funds for other investments. 

To qualify for the loan, you must meet certain eligibility requirements. Therefore, a person who gets a mortgage will most likely be someone with a stable and reliable income, a debt-to-income ratio of less than 50% and a decent credit score (at least 580 for FHA loans or 620 for conventional loans).

What’s The Difference Between A Loan And A Mortgage?

The term “loan” can be used to describe any financial transaction where one party receives a lump sum and agrees to pay the money back.

A mortgage is a type of loan that’s used to finance property. A mortgage is a type of loan, but not all loans are mortgages.

Mortgages are “secured” loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.

How Does A Mortgage Loan Work?

When you get a mortgage, your lender gives you a set amount of money to buy the home. You agree to pay back your loan – with interest – over a period of several years. You don’t fully own the home until the mortgage is paid off.

The interest rate is determined by two things: current market rates and the level of risk the lender takes to lend you money. You can’t control current market rates, but you can have some control over how the lender views you as a borrower. The higher your credit score and the fewer red flags you have on your credit report, the more you’ll look like a responsible lender. In the same sense, the lower your DTI, the more money you’ll have available to make your mortgage payment. These all show the lender you are less of a risk, which will benefit you by lowering your interest rate.

The amount of money you can borrow will depend on what you can reasonably afford and, most importantly, the fair market value of the home, determined through an appraisal. This is important because the lender cannot lend an amount higher than the appraised value of the home.