A mortgage loan is money provided based on the value of a house and property. A mortgage often refers to the document that borrowers sign, thereby giving the lender a lien on that property until it is paid off. The amount of the mortgage usually reflects the cost of the home minus the money put down as a deposit toward the purchase. The mortgage industry is highly regulated by the Federal Trade Commission (FTC), the agency that serves to protect consumers while promoting competition in the marketplace.
Mortgage Broker
The function of a mortgage broker is to shop around for the consumer to find a loan suited to the individual. A mortgage broker brings together the buyer and the lender. A broker may take loan applications and process the loans for a lending institution and may be involved with the closing of the sale as well.
Considerations
Many mortgage lenders offer buyers a note of pre-qualification based on income and credit scores. This gives consumers an idea of how much they can realistically expect to borrow to purchase a home. The Federal Deposit Insurance Corporation reports that lenders must provide equal qualifying determinations to all consumers and cannot base recommendations on conditions such as race, age, marital status or gender.
Size
The size of the mortgage is dependent on the cost of the home. Lenders require third-party professional appraisers to inspect a home and report on the fair market value of the property to make sure the home can be used as collateral in case the borrower defaults. When the down payment is less than 20 percent of the purchase price, lenders often require buyers to purchase mortgage insurance--also referred to as PMI or private mortgage insurance--to remain in force until the homeowner retains a 20-percent equity in the property.
Types
There are a variety of mortgage loans available. A conventional mortgage is a straight-out loan given by a bank that is not insured by a federal entity. A balloon mortgage sets the interest rate for a certain number of years, resulting in a large repayment of the balance of the loan. When buyers assume the mortgage loan of another homeowner, it is called an assumable mortgage, which may or may not be allowed by the original lender. A fixed-rate mortgage sets the rate of repayment at the time of purchase and does not change as long as the loan is in force. An adjustable mortgage changes the rate of interest on a predetermined schedule or according to market fluctuations.
Warning
The FTC warns consumers to beware of false advertising and misleading marketing ploys that are common in the mortgage industry. Because of the intricacies and level of real estate jargon involved in the process of obtaining a mortgage, predatory lenders often hide unscrupulous offers in glowing marketing materials. The FTC warns consumers to beware of buzzwords often employed by spurious lenders that might include "very low rates," "30-year lows" and "exclusive offers."
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